March 27, 2015

A Consequence Of The Euphoric Years

It’s Friday desk clearing time for this blogger. “My scientific data gathering techniques have produced evidence of a housing glut in Washington — a saturation of one- and two-bedroom apartments for rent that is having a negative effect on existing condo sales both on Capitol Hill and elsewhere in the city. The vast majority of Hill listings in MRIS, the realtor listing service, are sales, not rentals. Even Craigslist beats MRIS for rentals postings in my opinion, but it does provide a glimpse of what’s happening. Time and how much sun is being blocked out by construction cranes will tell if this is a rude awakening or a small bump in the road, but the advice remains the same as last year’s: Sellers, don’t take anything for granted. Buyers, don’t give up hope, there could be opportunities out there. There may even be a bargain in your future.”

“Dave Evans is president-elect of the Fayetteville Regional Association of Realtors. ‘If you don’t have to sell right now, you shouldn’t.’ Conversely, however, ‘The most exciting thing to be in Fayetteville is a buyer.’ According to Evans, Fayetteville has 1,200 excess houses on the market. He says a six-month supply is considered an even market. Fayetteville is well beyond a six-month supply and, at some price points, is at a 12- or 18-month oversupply.”

“But here’s the catch - Zillow senior economist Skylar Olsen’s numbers show a high number of foreclosures hitting the Fayetteville and Jacksonville markets. ‘I’m noticing by looking through the data though, right now there’s an uptick in the foreclosure resale. So enough homes have now made it through the foreclosure process.’ She calls that hidden inventory - homes owned by banks that don’t show up in the current for-sale supply because they are still making their way through the foreclosure process. Olsen says we just don’t know how much of that inventory is waiting to hit the market.”

“Coldwell Banker Owner and Real Estate Broker Kathy Vejtasa talked her perspective on Kern County’s proposed Land Use Management Plan. She said there are more rentals currently because ‘people working for the government cannot have a negative impact on their credit, they cannot have a short sale or a foreclosure, therefore they rent their house at a loss in order to protect their credit rating. That’s why the number of our rentals increased dramatically.’”

“Heather McAnerney of Peoria is one of many underwater homeowners in Arizona, who would love to sell their house, but can’t afford to do it. ‘We want to move because our kids are in a special program outside our boundary, but we can’t because we don’t have enough equity in the house to sell it,’ said McAnerney. ‘Our whole thing is that we need that equity so we can put equity towards a new house. The home values would have to skyrocket in the next 12 months for us to be able to put our house up for sale,’ said McAnerney. ‘All you can do is plug along and pay your monthly mortgage payment.’”

“Residential property prices fell across the country for the second straight month in February. In Dublin the decrease was 0.7% – and 2.4% since the start of December. Davy chief economist Conal Mac Coille said the slowdown was ‘not surprising or undesirable’ given that house prices no longer looked cheap by international standards. Savills research director John McCartney said it was hard for prices in Dublin to sustain the double-digit percentage rises that started in mid-2013 without peoples’ earnings also increasing enough to pay for them.”

“‘Agents are now reporting that buyers are no longer in a frenzy to buy for fear that prices will run beyond their means,’ he said.”

“So it’s time to buy! That’s the enthusiastic motto for Montreal’s 19th edition of Open House Weekends. Asked why developers keep going even as building exceeds demand, Jonathan Sigler, co-president of Prével, compared real estate to a cruise ship, in that it is slow moving, and takes time to get plans and permits in place, and then actually build. ‘A lot of the projects you see started way back when, in early 2010-11-12, when the condo market was very hot. We were selling out even before construction. What you are seeing is a consequence of the euphoric years.’”

“Offshore developers are outpricing locals as demand to build high-rises on Whitehorse Rd grows to ‘fever pitch.’ Allens Blackburn, director Grant Lynch, said the Federal Government’s proposed changes to foreign investment rules would have a mixed impact on buyers in the area. The Government is considering charging fees for foreign buyers for each attempt at buying a property; a fee of $5000 for property of less than $1 million and $10,000 for every extra $1 million in the purchase price.”

“‘I absolutely think there will be an impact on investors from Singapore, Malaysia and Hong Kong who have been investing in apartments in Australia for years,’ Mr Lynch said. ‘The market for investing in apartments in those countries is already a bit shaky because people haven’t been getting returns on their investment. However I don’t think there will be any impact on the multi-million dollar buyers from mainland China, whose main focus is on getting their capital out of China.’”

“Since the Interim Regulation on Real Estate Registration came into force in China on March 1, anxious cascade selling has emerged in the country’s housing market. Because the law requires full disclosure of property ownership, corrupt government officials who had bought multiple homes with illegal gains are worried that their irregularities would be uncovered. Many ’secret sellers’ have thus emerged in the used home market.”

“A real estate broker identified as Miss Huang said business was especially good last year, when the government began to push for the real estate registration system. Huang said she brokered more than 20 transactions in 2014. Many of the sellers had contacted her via telephone and did not show up until the transactions were about to be sealed, she said. Also, the sellers had lowered their prices in the hope that their homes would be sold quickly, Huang said.”

“A developer identified as Mr Zhao said the most anxious sellers now are government officials who had accepted real estate gifts from developers. In China, it is very common for developers to bribe government officials with gifts of real estate in order to obtain construction licenses, according to Zhao.”

“Las Vegas homebuilders are seeing more signs of a turnaround, but with borrowing costs poised to rise, sales could fall again, according to a new report. It’s ‘not a matter of ‘if’ but ‘when’ the Federal Reserve raises rates, according to Home Builders Research President Dennis Smith, who said he doesn’t believe that Las Vegas’ housing market — for new and used homes — is strong enough for buyers to withstand a jump in monthly payments.”

“There will be a brief burst in sales to people who jump in before rates go up, he said, ‘but that euphoria will likely be short-lived.’ ‘Some of the lenders we have spoken to recently are still very positive when they are in front of housing industry groups or individuals who only like to hear only the ‘good news,’ he wrote. ‘However, when we speak to them one-on-one, many are worried about what any rising mortgage rates could do to housing sales velocities.’”

“It is now clear that the shale boom was an illusion of prosperity. The same is true about improvements in housing. Following the financial crisis of 2008, real estate prices should have dropped, much, much more than they did relative to other prices. Today, housing is back, with price increases at bubble-era levels and construction activity is picking up. Yet, the overhang from the previous boom has not disappeared. It has just been left in limbo, because of the ‘extend and pretend’ strategy of banks made possible by the central bank’s massive printing over the last 6 years. The number of vacant units in the U.S. still stands at over 18 million units- a level reached back in 2008-2009. The number of units held off the market is still at a record level of over 7 million units.”

“Don’t be fooled by the euphoria of a boom built on a mountain of malinvestments. The problem in 2008 was too much debt, so the solution according to the geniuses in the Eccles Building is to lower interest rates to boost demand to induce households and governments to borrow even more.”

“Printing money cannot correct a misalignment created by government’s incessant interference with the workings of the price system. This printing however will actually make things worse since it alters relative and absolute prices, causing a greater divergence between what society wants to be produced and what is produced. Interfering with interest rates is by far the most damaging policy imaginable since interest rates are the price of time preferences and play a crucial role in aligning output with demand across time. The greater the misalignment across time, the greater the adjustment.”

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Bits Bucket for March 27, 2015

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March 26, 2015

People Just Don’t Want To Hang Onto Those Loans

CBS Denver reports from Colorado. “Real estate brokers say year over year they’re seeing a lack of inventory in the Colorado housing market. Real estate agent Andrew Nagel says some of the brokers in his RE/MAX of Cherry Creek office are astonished by how many offers are going into some resale homes. Nagel says about 30 percent of his buyers are now choosing new construction, which also comes with some built-in perks. ‘In 6 or 9 months that pricing is going to go up and up and up, so by the time you close and move into your house you’ve built in some equity,’ he said.”

The Journal Sentinel in Wisconsin. “With home prices slowly increasing, consumer confidence rising and interest rates still low, home equity lines of credit are making a modest comeback in Wisconsin. In 2014, the amount of home equity lines of credit on the books of Wisconsin-based banks rose 1.9% to more than $3 billion — the first time since the recession and housing market crash that such loans increased from the previous year. ‘The biggest factor has been home prices going up rather than going down,’ Doug Gordon, chief executive of WaterStone Bank.”

“Landmark Credit Union has been offering a fixed 1.99% annual percentage rate for the first 18 months of a home equity line of credit. After that period, the rate goes to 3.99% or the prime rate, whichever is higher. ‘When (home) prices are going up, they’re are a little more confident in spending. And obviously, the home equity lines are a perfect way for people to do improvements or buy cars and such because of the deductibility of the interest,’ Gordon said.”

AZ Family in Arizona. “There are a lot of hard working Arizonans who can’t afford a new home. They’ve got jobs and good credit, but don’t have enough money for a down payment. For many of them, help may be on the way. The nonprofit housing assistance group Trellis, announced this week, that the FirstBank Holding Company, has invested $1 million to make housing more affordable for low and middle income families. The new program will provide qualified home buyers up to $25,000, to be used as a down payment towards the purchase of a new home.”

“To qualify - a family of four must make less than $51,000, and a single person make less than $35,850. However, the money is not a gift - its a loan. Home buyers must repay the loan to Trellis over a 15-year period. Peoria mom Jenelle Forrester said a program like this could make a big difference for her family. ‘Coming up with money, a lot of times is really hard,’ Forrester said. ‘You don’t want to spend all your savings, because you are buying a house. You want to have something to fall back on.’”

The Wall Street Journal. “Home prices in some U.S. markets are rising much faster than rental incomes or what it would cost to build new houses in those markets, according to a new study by a real estate valuation firm. The growing gap between sales prices, on one hand, and rents and so-called ‘replacement cost’ on the other is evidence of markets that are over-heating, said the report by Jacksonville, Fla.-based Smithfield & Wainwright. ‘The build-up of false equity is on the rise again,’ the report states.”

“During the last housing boom, inflated appraisals helped contribute to the run-up in home prices. In December, The Wall Street Journal reported that appraisers are increasingly being pressured to inflate home valuations. In the story, the Office of the Comptroller of the Currency expressed concern that some of the mortgages banks are giving out are based on inflated values. Freddie Mac said it had launched fraud investigations to determine whether lenders had approved mortgages backed by inflated home appraisals.”

“Using inflation-adjusted data, the firm concluded that recent sales prices of single-family homes in 13 states and the District of Columbia are 10% more on average than what the homes would have been appraised for using two other methods.”

The New York Post. “A new time bomb in the residential mortgage market is starting to go off — potentially pushing thousands of struggling New York families into foreclosure. This year marks the start of a 3-year period for thousands of home equity lines of credit, known as HELOCs, to reset from interest-only payments to interest-and-principal payments. New York state has the fourth-largest dollar volume of HELOCs set to reset between 2015 and 2018 — roughly $8.4 billion.”

“Nationwide, RealtyTrac estimates there are 1.8 million underwater homes with resetting HELOCs, to the tune of $88.7 billion. ‘The foreclosure crisis is not anywhere near done,’ said Tom Cox, a Maine-based attorney and foreclosure expert. ‘I can’t tell you we’ve had enough time with it yet to say the stats demonstrate an uptick in actual foreclosures through HELOC resets, but … we know it’s going to happen.’”

8 News Now in Nevada. “New numbers show Nevada’s housing market could be headed for trouble. Notice of default, which is the beginning stage of a foreclosure, saw a sharp rise in its numbers last month. According to RealtyTrac, more than 350 default notices were filed in February 2014 while 662 were filed in February 2015. That’s an 80 percent increase. The hardest hit zip code, 89108, is near Lake Mead and Jones boulevards. Currently, about three out of 10 homes in Clark County are underwater. ‘Even though the market has gradually climbed and increased in property value, it’s still going to be decades for many, many people,’ said attorney Tisha Black, who has helped many struggling homeowners through the foreclosure process.”

“Numbers from RealtyTrac show many zip codes spiked in default notices last month. The zip code 89108 led the valley with 32 notices and 89031 came in second place. The top zip codes all have at least 25 homes in danger of foreclosure. ‘I think it’s a combination of a number of factors as to why that number has increased,’ Black said. Some homeowners declared bankruptcy which halted the foreclosure process, until now. Also, homeowners tired of being underwater have chosen to walk away from their homes.”

“‘I think a lot of those people just don’t want to hang onto those loans, when you’re that far undervalue,’ Black said.”

Bits Bucket for March 26, 2015

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March 25, 2015

A Long Way To Go To Be Back To Normal

A report from The Telegraph. “Inflation hit zero for the first time on record in February, sparking concerns that long-term deflation could wreak havoc in a muted UK housing market already spooked by general election uncertainty. Bad deflation - as seen in Japan over the last two decades and now a lurking threat in the eurozone - is down to subdued inflationary pressures. According to Anthony Codling, an analyst at the broker, Jefferies, this is dire news for existing homeowners. ‘If property prices drop existing homeowners will struggle to trade up, as a lower selling price will force them to take on a higher loan-to-value mortgage,’ said Mr Codling. ‘Why would you buy if you think prices are going to go lower? Homeowners like buying into a rising market.’”

The McKenzie County Farmer in North Dakota. “Even though oil prices continue to be low, city officials aren’t seeing the housing market or rental prices dropping in the area. Instead, they have been in somewhat of a holding pattern. ‘Because of the timing of the first building opening in December, and being that it was around Christmas, we didn’t fill up very fast,’ said Katie Walters, managing partner for Homestead Management who manages one local apartment complex development. ‘We also manage some modular cabins, and when people left for Christmas, they didn’t come back.’”

“‘Rents don’t seem to be coming down for apartments or duplexes, but I have heard of lease rate and lease-term reductions for modular and camper type of rental units,’ says Watford City Mayor Brent Sanford. ‘If the newly constructed apartments don’t fill as soon as expected, and if hotel occupancy and rates begin to decline this summer, there may be some downward pressure on the rent levels. Time and the West Texas Intermediate oil price will tell.’”

The Katy Rancher in Texas. “Figures released by the Houston Association of Realtors (HAR) indicate the housing bubble that the Houston market has enjoyed in recent years may be showing signs of weakening, and Fort Bend County has not been immune to the decline. According to HAR, falling oil prices and related layoffs, combined with limited housing inventory and rising home prices contributed to the decline in sales. ‘We’ll probably continue to see a shift from a seller’s market to a buyer’s market in the months ahead,’ said Realtor Kim Patrick with Keller Williams Premier. ‘We’ve been in a seller’s market for a few years, so it was just a matter of time before we started seeing numbers switch the other way.’”

The Financial Post in Canada. “So you think Calgary’s housing market has seen a major downturn this year? Just take a look at what’s happening in the heart of Alberta’s oilsands industry as crude’s price collapse continues. MLS sales of single-family homes in Fort McMurray and its surrounding area have plunged this year. In February, sales were down by a whopping 66% from a year ago, at just 48 units. That followed an annual decline of 53.19% in January.”

“Don Campbell, senior analyst with the Real Estate Investment Network, said smaller centres located in resource-based regions, such as Fort McMurray and Grande Prairie always have higher highs and lower lows than the more diverse and larger cities. ‘When a city or region’s economy is based on one major industry, when that industry slows, the consumer confidence in the whole city begins to fade thus increasing the overall market fear,’ said Campbell.”

The Australian. “Port Hedland — the dust-coated Pilbara town at the heart of the ­nation’s economic miracle of the past decade — grew at breakneck speed during the boom as thousands of people poured in to seek their fortunes. As property prices in the town plummet in response to the end of the mining construction boom and the recent collapse in iron ore prices, its once-overheated economy is returning to normal.”

“A sudden availability of workers means small businesses — many of which were forced to close during the boom due to the dearth of labour — are opening at a rate not seen in years. And cheaper housing means families are again able to live in town, reducing the need for iron ore mines to rely on fly-in, fly-out workers. Mine worker Tom Hillcoat decided to switch from being a fly-in, fly-out worker to moving permanently to Port Hedland with his wife, Kylie, and two young children, who he says all enjoy the outdoor lifestyle.”

“Looking around for a rental property, he found a house that had once been rented out for $2600 a week but the price had fallen to $1700 a week — and has since plummeted to $900 a week. ‘To have my family up here is the best thing I can imagine,’ he says. ‘And as prices come down, it’s becoming more family oriented and more people are moving here.’”

“Yet not everyone is convinced that Port Hedland can return to normal so soon after the economic revolution of recent years, or that it can grow from 20,000 people to reach the Barnett government’s vision of sustaining a population of 50,000 in the next two decades. One of the town’s longest-­serving residents, former mayor Arnold Carter, says the average rental value of a house in today’s market is still about $800 a week — far higher than in Perth and other centres. ‘It’s a long way to go to be back to normalisation,’ he says.”

Bits Bucket for March 25, 2015

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March 24, 2015

If Everybody Is Thinking The Same Thing

Reuters reports on Sweden. “Having twice cut rates into negative territory, Sweden’s central bank is locked in a high-stakes currency war with the European Central Bank that could stave off deflation but risks creating another property bubble. The danger is that the ultra-loose monetary policy could encourage households to take on more debt. ‘Our fundamental view is that they have been forced to take this aggressive action because of past mistakes,’ said James McCann, European economist at Standard Life Investments. ‘The risk for them is if they go big on asset purchases it could feed through into bigger credit creation in the housing sector and they would be stoking financial stability risk.’”

“Memories of Sweden’s crippling property crash of the early 1990s remain vivid. Though set against a different backdrop — high inflation was then endemic in Sweden — a real estate lending boom crippled several banks as loans went bad, necessitating a costly state rescue. The rest of the decade was spent slowly restocking public finances amid soaring unemployment that even now has yet to return to pre-crisis levels.”

The Associated Press on Brazil. “Developers brag that the athletes’ village for the 2016 Rio de Janeiro Olympics will rival a five-star resort. The village will be turned into a private condominium complex after the games with some of the 3,600 luxury apartments selling for up to 2.3 million Brazilian reals ($700,000). Christopher Gaffney, who spent 5 1/2 years in Rio researching the 2014 World Cup and Olympics, called the village ‘a transfer of wealth program from the public (treasury) to private construction firms.’ ‘Beyond the floodlights, the Olympics are always about real-estate speculation in the local context and Rio, with its already major problems of housing stock and social polarity, is definitely no exception,’ said Gaffney, an American who teaches geography at the University of Zurich.”

The New Zealand Herald. “The head of Australia’s banking regulator says the current state of the housing market poses a possible risk to the economy, even if it isn’t in a bubble. But Australian Prudential Regulatory Authority chairman Wayne Byres stopped short of saying Australia was in a housing bubble. ‘I don’t know what a bubble is and I don’t quite know how you spot it … If these things were easy to spot and define, almost by definition regulators could deal with them,’ he said.”

The West Australian. “WA’s slowing economy and a flood of new high-density developments have pushed Perth’s housing market into oversupply. The number of Perth properties listed for sale is up by more than 2000 since the start of the year to 14,000-plus, while sales are down 15 per cent from the same time last year. The number of properties advertised for rent has also continued to rise, up 210 per cent in three years to 6500, according to Real Estate Institute of WA figures.”

“‘It’s not just that everyone’s selling, it’s that we are getting fed into the market a very high number of units and apartments that are coming on-stream,’ said REIWA president David Airey. ‘With this large supply of homes for sale and rent, it’s likely we will see negligible price growth across 2015 and a fairly slow market for those selling property or looking for tenants.’”

The Financial Post in Canada. “Real estate sales in Alberta are off as much as 30% to 40% from a year ago and listings are way up, creating one of the worst scenarios in which to sell your home. Robert Brown, who just published Wealthing like Rabbits, says preparing for a downturn comes well before the economy turns and begins with staying out of personal debt. Selling off assets is a possibility, but if everybody is thinking the same thing ‘you take a hit on price,’ as people will discover if they sell houses in Alberta today, said Mr. Brown. ‘Maybe you don’t have to sell off big-ticket items but things that are inside your home,’ he says.”

The Strait Times on Singapore. “Almost six in 10 public rental flat applicants today are former home owners who had sold their flats. Cases where unforeseen circumstances such as illness or retrenchment lead to mortgage trouble, are not uncommon, MPs, social workers and tenants told The Straits Times. They also listed debt, divorce, family conflict and imprudent spending as other reasons. There are also home owners who get carried away with the proceeds after selling their flats. ‘Many have not seen so much money before, they think it’s a bottomless pit,’ said Pasir Ris-Punggol GRC MP Zainal Sapari.”

“Chua Chu Kang GRC MP Zaqy Mohamad mentioned a family who went on vacations and stayed in hotels in Singapore after getting more than $100,000 from selling their flat. ‘By the time they came to me (three years ago), they were living in a van,’ he recalled.”

From Asia Times. “There’s certainly been no shortage of ‘How’ questions on Kaisa, the first Chinese property company to default on its offshore U.S.-denominated public bond obligations in the history of the Asian high yield market. This article though, isn’t about Kaisa. It’s more about the trends of debt in Asia and that ever-familiar sense of deja vu one gets whenever the subject turns to lending in this region.”

“Its difficult to shake off a feeling that nothing changes in Asia until and unless it really has to under the force of circumstances. A reader can’t be faulted for asking an obvious question – if nothing has changed, what’s the point of changing it? The answer to that is worthy of a separate article. But a summary of my views are appended below.”

“The penultimate reason and one that has been largely overlooked is – Japan. That country failed to take defaulting real estate companies by the horns in the late ’80s and early ‘90s owing to self-serving logic of avoiding a rapid decline in asset prices. As history has now shown, that decision to protect these companies from bankruptcy helped to create 20 years of zero to negative growth for the nation and made it the impotent economic sideshow it now is.”

“The last reason is also one that may be controversial – but it is something I fervently believe in. Failure to repay without fear of consequences is arguably a ‘public bad’ as inefficient businesses remain in operation and end up sucking what are essentially illegal public subsidies to remain in operation.”

“As a friend who is a restructuring lawyer in Asia mentioned recently – ‘Look at the proverbial table. The issuers of debt who are now defaulting are the same chaps who defaulted in 1997. That’s bad enough, but what’s more galling is that investors who are on the other side of the table are also the same institutions (if not the same individuals) who were at the table back then. No one learns anything in Asia.’”

“He could have added that all other professionals – lawyers, financial advisers, bond traders and private investors in such bonds – are also pretty much the same from 1997.”

Bits Bucket for March 24, 2015

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March 23, 2015

A Lull Before The Storm

A report from the New York Times. “In New York, teens and preteens are becoming savvy connoisseurs of real estate. Perhaps it’s because they’re so utterly at home on the Internet. Perhaps it’s because they’re lured by online images of condo amenities like an indoor pool or a children’s playroom or because they’re fans of ‘Million Dollar Listing New York’ on Bravo. Or maybe it’s because it’s become business as usual for children in certain precincts of Manhattan to participate in family decisions. ‘They choose where they and their parents are going to have dinner or where they’re going to go on vacation,’ said Stuart Moss, an associate broker at Corcoran. ‘So why shouldn’t it extend to where they’re going to spend several million dollars for a residence?’”

“A year and a half ago, Skye van Merkensteijn was shooting hoops with a friend who lives at a condominium-rental hybrid on Riverside Boulevard with its own indoor basketball court, climbing wall and bowling alley. Thirteen-year-old Skye was impressed — and envious. Well, his worldly pal told him, he just happened to know of an apartment for sale on the 21st floor. ‘When my husband came home’, Skye announced: ‘We’re moving and this is the place we’re moving to,’ said Skye’s mother, Elizabeth van Merkensteijn, ‘They hear the numbers. We talk about everything in front of everyone. I get it that the air is thin and that it’s rarefied. But it’s the reality of New York City.’”

The Marin Independent Journal in California. “Marin home prices dropped just a tad in February, the first decline in two and a half years, though experts shrugged off the reported 1 percent decrease as an anomaly. ‘Sales are basically flat? I’m surprised to hear it,’ said Bernard Link, an agent with Alain Pinel in Mill Valley, of the CoreLogic report. ‘It seems like multiple offers for any desirable property are the norm now.’ In February, Link said, the average price in southern and central Marin was 102 percent of asking, while in northern Marin, it was 98 percent of asking.”

The Sun Sentinel in Florida. “After two years of wading through picked-over listings, South Florida buyers are celebrating a new batch of well-maintained homes for sale. Palm Beach County had 27,714 new listings last year, up 16 percent from 2013, according to the Realtors Association of the Palm Beaches. Broward County had 27,940 new listings, up 14 percent from 2013, the Greater Fort Lauderdale Realtors said. Listings also were up in both counties during January.”

“‘Every time we turn around, we’re getting inundated with new listings,’ said Jason Tornatore, who recently signed a contract on a Fort Lauderdale house. ‘Just within the last two weeks, stuff is flying onto the market. Getting what you want is a lot easier these days.’”

“But with listings on the rise, so too is sellers’ optimism. Sellers always tend to think their homes are more valuable than they really are, and that’s especially true now in a recovering market, said Cathy Prenner, a South Florida agent for Campbell & Rosemurgy. In some cases, the higher prices are turning off buyers, who don’t feel the need to rush into deals as they did in the past. ‘It’s definitely a challenge to get sellers to realize what the real, winning price is,’ Prenner said. ‘Some of these homes aren’t really priced where the market is. They’re priced where the seller wants it to be.’”

The Arizona Republic. “Metro Phoenix’s housing market didn’t start the year with a bang. January was a slow or even dismal month for home sales and prices. The Valley’s median home sales price fell to $208,000 in January from $215,000 in December, according to a report from the W. P. Carey School of Business at Arizona State University. Home sales dropped 26 percent. ‘January is always a quiet month, but we believe this was a lull before the storm,’ said Mike Orr, director of the Center for Real Estate Theory and Practice at W. P. Carey.”

“Home sales fell in January despite the many visitors to the Valley for everything from the Waste Management Phoenix Open golf tournament to the Super Bowl. In January, 4,965 Valley houses changed hand, compared with 6,764 in December.”

The Washington Post. “Despite an overall housing recovery, it’s suddenly becoming more common in several of the nation’s largest cities for homeowners to owe more on their home than it’s worth. The national negative equity rate, which had declined for 2 1/2 years, stalled in the fourth quarter of 2014 at 16.9 percent, according to Zillow. In the fourth quarter, the rate worsened in 21 of the nation’s top 50 housing markets, including Philadelphia, Boston and Houston.”

“Zillow estimated that more than a quarter of homeowners are underwater in the metropolitan areas of Virginia Beach, Jacksonville, Las Vegas, Atlanta, Chicago and Memphis. Many lower-value homes are losing value again, Zillow reported, and that’s what’s behind the rising rates of negative equity. Zillow reported that the underwater rate for top value homes was only about 9 percent, compared to almost 16 percent for middle value homes, and for the bottom tier of home values more than 27 percent.”

“In places like Kansas City, Cleveland, Atlanta and Chicago, more than 40 percent of bottom tier homeowners were underwater, but 10 percent or less for the top.”

Fox 5 Vegas in Nevada. “According to RealtyTrac, foreclosures in our state are again on the rise. While experts say Nevada is better off than it was three or four years ago, there are still a lot of people living in homes they have been making payments on for months, even years. According to FOX5 legal analyst Bob Massi, the clock is ticking on people who haven’t been making mortgage payments.”

“‘If they’re getting these default notices they better understand that probably, usually it’s 120 days before a foreclosure takes place from when you get the actual notice of default. They better start making plans to move,’ Massi said. Massi said he believes banks have been manipulating the market, waiting for property values to rise before proceeding with foreclosures. They’re now making their move. ‘Now, with the foreclosures and the defaults being filed, they’ll probably get a better bid on their foreclosure sales,’ Massi said.”

“Scott Beaudry, president-elect of the Greater Las Vegas Association of Realtors, agrees with Massi. He said there is a backlog of foreclosures that banks need to process. Still, he said, the situation is not dire, like it was just a few years ago. ‘It’s a great opportunity to purchase a home right now. There is great inventory and great properties to choose from,’ he said.”

Bits Bucket for March 23, 2015

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March 22, 2015

Sellers Can Have Their Cake And Eat It Too

A housing bubble topic for the weekend, the Hong Kong Standard. “In The Fabulous Decade, a book co-authored by Janet Yellen and former Fed vice-chairman Alan Blinder, she suggests behind the boom of the 1990s were monetarism combined with fiscal discipline. The book was published in 2001, therefore the authors missed that spectacular burst of the dotcom bubble and subsequently the housing boom and bust. Ten years lapsed. Despite all the ups and downs in the market, Yellen remains a believer in central banking. The US economy has been recovering, slowly but surely. There is no sign of consumer price inflation. Prices of stocks, bonds and even real estate are a little high, but not even close to an alarming level. There is no reason for the Fed to change the status quo, except the expectation that it has to do something.”

“The greatest uncertainty ahead is the ever strengthening US dollar. A strong dollar keeps domestic consumer prices in check while on the other hand the flood of liquidity from all over the world keeps asset prices in the United States afloat.”

From Bloomberg. “Investors are kicking themselves if they listened to Fed Chair Janet Yellen and the Board of Governors last July and sold their biotech stocks. As Bespoke Investment Group points out, the Nasdaq Biotech index is up well over 40 percent since Yellen’s valuation comments.”

“Here is what the Fed said in its Monetary Policy Report on July 15: ‘Nevertheless, valuation metrics in some sectors do appear substantially stretched—particularly those for smaller firms in the social media and biotechnology industries, despite a notable downturn in equity prices for such firms early in the year. Moreover, implied volatility for the overall S&P 500 index, as calculated from option prices, has declined in recent months to low levels last recorded in the mid-1990s and mid-2000s, reflecting improved market sentiment and, perhaps, the influence of ‘reach for yield’ behavior by some investors.’”

The Press Democrat in California. “We find ourselves about to embark on our spring rush in the North Bay real estate markets. Coming off last year’s supply-constrained market conditions, we are seeing even less inventory make its way to the table for consumption by eager buyers. Many sellers are searching to understand what the actual value may be of their current home, as well as wondering where and when they will find their next home.”

“Within the borders of Sonoma County, Windsor’s price-per-square foot soared to $405 for a single family home - a staggering leap of 96 percent over last year, partly due to a low volume of sales. The city of Sebastopol reported a 39 percent gain to close the month at $528psf. The west side of Petaluma boasted a hearty 21 percent rise as this submarkets tipped the scales at $390psf.”

“The markets are indicating aggressive demands from buyers with sellers trying to figure out how they can have their cake and eat it, too. Most are encountering madness in the process. This year may find the aggressive, yet patient buyer have the greatest success as they will likely be more creative in their attempts, eventually reaching their goal while helping to create momentum in the marketplace.”

The Mercury News in California. “The Bay Area’s housing market looks like it’s headed for a competitive free-for-all this year as a low supply of homes for sale has droves of buyers bidding up prices everywhere. February sales dropped by double digits from a year ago along the Peninsula and the South Bay and parts of the East Bay, CoreLogic DataQuick reported. ‘I don’t see any bubble at all,’ said Ken DeLeon of Ken DeLeon Realty in Palo Alto. ‘I just see a lack of inventory.’”

“It’s pretty much the same in the East Bay. ‘We are experiencing a little bit of craziness right now,’ said Tom Hendershot, a Redfin agent who covers the Oakland-Berkeley area.”

From Fox Business. “‘It was very difficult to definitively identify a bubble until after the fact–that is, when its bursting confirmed its existence.’–Alan Greenspan, former Federal Reserve Chairman, Jackson Hole, August of 2002. The Federal Reserve had driven the effective federal funds rate down to a low 1.7% when Greenspan made that comment, and the housing bubble was ballooning, ready to burst. Now, the next Fed-induced bubble is popping, a bubble that helped mask weaknesses in the economic recovery.”

“‘The beneficiary of the Fed’s easy-money policies – energy – has burst,’ says Stephanie Pomboy of MacroMavens. ‘The sudden and dramatic souring of the economic data in the last few months suggests the energy bubble had a much bigger role in the recovery than commonly perceived.’”

“Pomboy points to analysis put out by the Manhattan Institute last February which ‘is looking less outlandish.’ The Institute claimed the entire economic recovery was due to the U.S. oil and gas boom, which overall ‘has added $300 billion to $400 billion annually to the economy—without this contribution, GDP growth would have been negative and the nation would have continued to be in recession.’”

“The energy bust has also blown a hole in Treasury demand ‘created by reduced dollar recycling,’ Pomboy says. Meaning, profits from the boom in global oil transactions settled in U.S. dollars (the dollar is the reserve currency) had to be parked somewhere. As energy prices rose, more dollars were recycled in U.S. Treasuries, driving yields to historic lows and helping consumers to borrow to spend.”

“But as the dollar has strengthened, that has led to a sharp, ‘inexorable reduction’ in demand for U.S. Treasuries, Pomboy says. From their peak last September, foreign transactions in Treasuries have flipped from a positive $74 billion per quarter in purchases to a negative $26 billion in quarterly sales through year-end 2014, Pomboy adds.”

The Australian Financial Review. “Australia will run into a glut of apartments in just two years led by Melbourne and Brisbane - but other cities including Adelaide are also building more than they need, research house BIS Shrapnel predicts. By June next year, the country is likely to have more than 74,000 apartment completions, which is 5000 more apartments than it needs. Melbourne faces a surplus of 15,000 apartments.”

“Having led the growth of high-rise dwellings on a scale not yet seen, Melbourne’s construction industry needed to change tack to avoid being hit by the glut, said BIS Shrapnel associate director Kim Hawtrey. ‘Now is the time to start sounding the alarm,’ Dr Hawtrey said.”

“Chinese Estates net profit jumped 38 percent in 2014 after it pocketed HK$2.91 billion from selling its troubled unit Moon Ocean to major shareholder and former chairman Joseph Lau Luen-hung. Turnover dived 59 percent from a year earlier to HK$2.63 billion due to a nearly 90 percent drop in property sales. The developer sold considerably fewer homes in both Hong Kong and the mainland last year, with total sales plunging to HK$207 million and HK$410 million respectively from HK$2.92 billion HK$1.73 billion in 2013.”

“More than 99 percent of its local retail properties were leased during the year, though Hong Kong posted its first annual retail sales drop since 2003. ‘Rental rates for certain retail business sectors have shown signs of reaching their peak,’ Lau said.”