April 21, 2015

Bits Bucket for April 21, 2015

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April 20, 2015

The Mistake Of Regarding Homes As An Asset Class

The Marin Independent Journal reports from California. “Marin single-family home prices jumped 3.4 percent in March as the county continues to deal with a supply and demand problem that’s causing bidding wars among buyers. The median price of a Marin home in March was $987,000, compared with $955,000 in March 2014, and 218 homes sold in the county compared with 219 in the same month the year before, according to CoreLogic. People interested in buying homes are being advised by Bob Ravasio, a Coldwell Banker real estate agent, to make sure they know how much they’re comfortable spending on a home. ‘I always tell my clients to chose how much money to spend based on if you get it you’re not going to wake up the next day and say ‘Oh god, what have I done.’ On the other hand, you don’t want to say ‘Oh man, I should have put in more money,’ Ravasio said.”

The World Herald in Nebraska. “Within three weeks of deciding to stop renting, Dayna Miyashiro and fiance Jeff Allgood signed a contract to buy a midtown house. In fact, they pitched their higher-than-asking-price bid right after laying eyes on 4307 Marcy St. The offer on the 89-year-old home was accepted before sundown the next day. ‘We had to be very aggressive,’ said Allgood, a securities specialist. ‘We didn’t want to miss out.’”

“The couple — he’s 25 and she’s 28 — is part of a wave that many real estate experts believe is resurging locally: the first-time homebuyer. With his family nearby, and UNMC growing, the couple consider the gable-roofed, wood-floored home a wise investment even if the budding internal medicine doc is stationed elsewhere after her residency. ‘We’ll always have a connection to Omaha,’ she said. ‘Buying a home, I know, will be a great investment.’”

The Coeur d’Alene Press in Idaho. “The National Association of Realtors and the Department of Housing and Urban development agree, the way credit scores are calculated needs updating. Credit scoring companies have already taken steps to broaden the criteria to include payments for utilities and rents. By looking at other measurements like on-time payments to a property manager, phone company or utilities under the proposed changes these folks could build a good score through the agencies adopting the proposed new standards. Recent research by Experian finds that the inclusion of utility payments in a credit-scoring model could reduce the number of borrowers considered to be subprime by half.”

“While these things could help the housing market, we are seeing another challenge locally. With 54 percent of our residential sales selling for less than $200,000, a search of the Coeur d’Alene market revealed only 126 homes available below that price. Of that number, nearly half showed accepted offers already in place, waiting for financing or inspections before moving to closing and completing the transfer. This makes it pretty slim pickings for buyers trying to find affordable houses.”

Chicago Now in Illinois. “I did a double take yesterday when RealtyTrac released their March Foreclosure Market Report, including data for Chicago. Since peaking again in August 2012 Chicago foreclosure activity has generally been on a downward trend and actually hit a new low in February. Then the March data comes along and it’s roughly triple what it was in February. In fact, it hasn’t been this high since January 2013. Their on-the-ground intelligence indicates that the spike might have been the result of some kind of backlog that just cleared and released a flurry of activity.”

“Note that the surge is in the two latter stages of foreclosure - bank repossessions and scheduled auctions. Defaults did not increase so the pipeline is not getting fatter and will probably end up clearing faster now. So if this data is correct then we can look forward to a surge in distressed properties hitting the market and a further reduction in the shadow inventory.”

“One of the more interesting points RealtyTrac VP Daren Blomquist made was that back in early 2013 Illinois passed SB 16, otherwise known as the Fast Track Foreclosure Legislation. The legislation did anything but provide a fast track foreclosure process. In fact, with all the additional requirements, not only did it slow down the process but it totally discourages foreclosures of low end homes where the cost of a foreclosure now exceeds the benefit for the bank. So we are ending up with all these low end homes where the owner is in default on their mortgage, the bank is entitled to all the proceeds of any sale, but the bank doesn’t foreclose on the home. These homes become zombie foreclosures and it’s a growing problem for cities like Chicago.”

The Houston Chronicle in Texas. “A new reality is settling in on the local real estate market as Houston confronts its first serious economic hit in years. After years of white-hot growth, some houses are sitting on the market a little longer and builders have started offering perks to lure prospective buyers. One Tuesday morning last fall, Sheldon Bloch checked his computer for new home listings and saw a four-bedroom that looked promising. He and his wife, Pat Deeves, knew from experience they had to act fast.”

“The dogged house-hunters drove past and phoned their real estate agent. That afternoon, Bloch called their mortgage broker and Deeves penned a letter to the sellers. They offered thousands more than the asking price. After almost two years of wrestling Houston’s real estate market at its most challenging, Bloch and Deeves had finally won - and now it was their turn to call the shots. The couple listed their old house in January, then waited. Six weeks later, they dropped their price by $15,000 - and waited another week before making a sale.”

“‘It was the flip side of the fall experience,’ Deeves said.”

From Barron’s. “Rising sales in Dallas and Denver, for example, mean houses now cost more than they did back in 2006; and other markets, such as Boston, Charlotte, Portland, and San Francisco, are very close to their peaks, according to Standard & Poor’s/Case-Shiller. Just as several measures of U.S. economic growth appear poised to accelerate, the three-year residential real estate market recovery is showing signs of slowing.”

“Housing starts, as reported by the Commerce Department, have been in a deep funk ever since the U.S. housing bust and Great Recession hit with such ferocity in 2007. They can’t seem to get much over the hump of one million a year, even though population growth and immigration alone would seemingly dictate construction of at least 1.4 million homes annually. ‘There’s no question the housing recovery is beginning to falter some,’ observes David Blitzer, chairman of the keeper of the S&P/Case-Shiller Home Price family of indexes. ‘Anytime in the past, when housing starts came in at the current annual pace of one million new homes, the economy was in recession. One wonders whether these days something has changed in Americans’ attitude towards homeownership.’”

“Robert Shiller, co-creator of the Case Shiller home price indexes, said, many buyers during the boom years, aided and abetted by real estate industry cheerleaders, made the mistake of regarding homes as an asset class, like stocks or bonds. This is clearly not the case. Homes, in fact, are a consumption item that depreciates, requiring much upkeep spending to hold value. In fact, about the best one can expect in home appreciation over the long term is to match inflation. That’s what a study of U.S. home prices from 1890 to 1990 showed. Actually, Shiller found that prices outpaced inflation by a trivial 10 basis points (a tenth of a percentage point) annually.”

“Shiller detects reluctance on the part of many to shoulder the long-term commitment that a home requires. ‘People are clearly beset by insecurity over their careers, both as a result of globalization and job displacement by computers,’ he observes. ‘We live in a world of first-mover advantage and a winner-take-all economy that makes people fearful.’”

Bits Bucket for April 20, 2015

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April 19, 2015

Does ‘It’s Just A Boom’ Still Hold True?

A weekend post on bubble recognition. The Seattle Bubble, “Housing Bubble 2.0: The Perma-Bears Respond. “Ben Jones, who has been blogging about the housing bubble from down in Arizona since late 2004 at The Housing Bubble Blog linked to my ‘Welcome to Housing Bubble 2.0′ post yesterday, prompting an interesting discussion in the comments. Here’s a selection from the conversation that ensued: Comment by Ben Jones - ‘I’ve called this the ‘it’s not 2000-pick your year’ excuse. Sure, house prices are up up UP! There are people camping out for pre-construction houses, multiple offers over asking, investors running wild. Shortages, man, shortages! But; there are not the exact circumstances of the pick your year. The bubble is in the minds of the participants, and it couldn’t be more clear. All the proof you need is in the prices. It doesn’t matter how you get there.’”

“I disagree with the premise that ‘all the proof you need is in the prices.’ If that were true, then New York and San Francisco have basically been in a perpetual housing bubble since the middle of the twentieth century. There is a lot more to recognizing a housing bubble than just the prices.”

“For perspective on where Ben and most of his commenters are coming from (and to explain my use of the term ‘perma-bears’), in early 2012 when I was saying that ‘I suspect that we’re basically at ‘the bottom’ for home prices,’ here’s what Ben was saying: ‘It’s difficult to understand where we are with the global housing bubble, because the media ignore it. So anyone interested has to glean what they can from various sources. IMO, many countries or entire regions are either at all time highs, or just barely off the peak. I don’t have time or space to post them all…’”

“‘I read the NAR economists saying prices were up in the US in almost every state. I don’t know about that, but even if it’s true, they are up in Jakarta too. So what? What should matter is are house prices too high. Are lending standards where they need to be. Again, if ‘affordability is at an all time high’ as the NAR says, how come the govt is doing all the lending at under 4% with little to nothing down? I don’t see how this situation isn’t ringing alarm bells around the world. I guess it is, but not many are listening.’”

“The focus of Ben’s blog is typically on the ‘global housing bubble,’ which he seems to believe is still going strong. I’m not making any particular claims about anything global since the focus of my blog is local, but I do try to do my best to stay aware of what’s going on in the big picture.”

“To reiterate my point, I do think we are currently in the beginning stages of another housing bubble. However, I think that it is building up very differently than the one that inflated 2004-2007, and will therefore have a very different outcome than the last one. I don’t yet know what that will look like (no one does), but I strongly suspect it will not include a dramatic increase in inventory, a flood of foreclosures, and rapid decreases in home prices.”

Then a couple of days ago there was this: ‘Warning: New Housing Bubble Ahead.’

“This comment left by Ryan strikes me as a clear warning sign of another housing bubble inflating in Seattle. ‘Just pulled the trigger on buying a townhouse in Fremont for $745k. Haven’t closed yet so don’t want to link to the MLS. Thought I would share my thinking on why I bought and what the situation was like. List was for around $650k. Property had multiple offers, most within a few $k of the accepted price. List to accepted offer in about 7 days.”

“‘Three quarters of a mil for a townhouse seems insane but we feel good about the purchase for a few reasons: My office is on the same block as the unit, can’t beat that commute. I’ve lived in Fremont for years and want to stay for the long haul both a resident and business owner. The unit was unusual in a number of ways, all good. Exceptional build quality. Units sold nearby with same square footage for similar price that are absolute garbage. We wanted a house but didn’t have the capital to buy and then remodel, most things in our geographic range needed work.’”

“‘I felt good about the potential future appreciation of the property due to being so close to all of the major tech employers.’”

“‘On the downside it’s definitely on the high end of what anyone paid for a townhouse in Fremont and there is no way around the fact that it’s insane amount of money. If tech is in a bubble it still feels like the early stages of the bubble and we didn’t see the situation improving. Mid term (5 year range) it seems that traffic will get drastically worse as everything under construction comes online, so it seemed smart to set up our lives not to have to leave the neighborhood.’”

“‘Just one perspective from someone helping to inflate both the tech and housing bubble.’”

“Here’s what concerns me the most: $745k for a townhouse. In Fremont. The home sold for $100k over list price with multiple offers at that level. The buyer cites that he ‘felt good about the potential future appreciation’ as partial justification for paying so much.”

“I still don’t think we’re likely to see another big price crash (yet) but stories like this one definitely scream ‘housing bubble’ to me.”

From an article I posted in the comments yesterday, “Matthew Gardner remains comfortable with these steeply rising housing prices. The long-time Seattle economist — who does a lot of work in the housing market — thinks the dramatic price increases will continue this year and possibly for the next few years because inventory remains tight. But he notes that the really big jumps are mainly in “close-in Seattle” — particularly places like Queen Anne and Capitol Hill. Across the metropolitan area prices haven’t and won’t climb so steeply. Those locations are in fact still affordable, he said.”

“Well, these close-in price hikes are starting to get into OMG territory so Crib Notes asked Gardner, who is principal of Gardner Economics, and some other experts to answer this question: When does this stop, and how? These increases can’t keep going. It’s not natural, not sustainable. A huge question on a lot of folks’ minds is: Will this end with a ’soft landing’ or something more like a slam down? You know, like something bursting?”

“Crib Notes wrote a year ago: People, it’s a boom, not a bubble, because there isn’t the crazy-bad lending, appraising and non-regulation now that stoked THAT bubble. But dang, does ‘It’s just a boom’ still hold true? How about that recently headline saying Seattle’s median home price rose 18.9 percent from March to March, to a hefty $535,000. Really, 18.9 percent!”

“Gardner made a key point: The crazy lending that fueled the last big bubble and burst is not happening this time. ‘There isn’t any subprime now,’ he said. The science of it starts with income levels. If incomes climb enough to support the higher monthly house payments created by these big fat house prices, then they are sustainable. If prices rise too high, then the market corrects.’”

“‘We forecast close to 48,000 new jobs in the metro area this year,’ he said. ‘Seattle remains one of the best locations relative to potential growth in 2015. We still have some potential for prices to move higher without a bubble forming.’”

Bits Bucket for April 19, 2015

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April 18, 2015

Bits Bucket for April 18, 2015

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April 17, 2015

A Riskless, Highly Profitable Investment

It’s Friday desk clearing time for this blogger. “Sonoma County home sales remain at their lowest level in seven years, but last month, 613 properties entered the market as new listings, the most for March in five years. Bill Facendini, president and broker for Terra Firma Global Partners in Santa Rosa, said the new listings in March didn’t have much effect on home values in three of the county’s hotter markets: Healdsburg, Sebastopol and west Petaluma. ‘The prices they are achieving are way above where they should be,’ he said.”

“Stephen Liebling, manager of the Coldwell Banker office in Sebastopol, noted that typical tract homes in Sebastopol are selling for $750,000. ‘It’s really crazy,’ he said.”

“Susan Coyle says her Real Estate Two agents can feel it, whether at her original office in Shelton or in Fairfield. Buyers are out in force and sellers appear ready to make a deal, if not quite at the prices they would like. ‘A lot of listings have, all of a sudden, started to come onto the market,’ said Coyle.”

“Across Fairfield County, the average price for a single-family home climbed just 0.6 percent, to $643,000, while the price of the median home sold was off slightly to $394,000. ‘The hardest thing is to explain to the seller that prices have not increased,’ said Coyle. ‘(Homes) are coming on the market, they’re selling; but … the prices have not gone up.’”

“The specter of plunging oil prices hung over Baton Rouge-area real estate market discussions, with predictions that it could lead to a glut of new apartments. In 2015 alone, 1,666 apartment units are expected to be completed. The vacancy rate was 5.5 percent during fall 2014, compared to the national average of 4 percent. Rents have gone up 6 percent since 2010. ‘We could end up with a glut of units,’ said Wesley Moore, with Cook, Moore & Associates. Moore said nearly 6,000 new apartment units are planned in the Capital Region by the end of 2016.”

“Brokers say condo rental rates in Brickell and downtown are largely the same as six months ago and expect they will remain so or even trend down a bit as new units come on line. Jonathan Garcia, broker for ONE Sotheby’s International Realty said the condo market in Miami is strongly linked to foreign demand, with some 80% of the units purchased by foreign investors. He said changes in the currency exchange rate of countries like Brazil, where the currency has dropped 30% since October, will affect Miami.”

“In the next 2½ years, Mr. Garcia said, 40,000 new units will be coming online in South Florida, 20,000 of which will all be in the downtown market at the same time. With so many new units hitting the market at once, said Duff Rubin, senior VP of the Southeast region for Coldwell Banker Residential Brokerage, renters will have that many more choices so prices will have to be more reasonable. ‘Owners saw unrealistic appreciation, which is no longer sustainable,’ he said. ‘Supply has caught up with demand.’”

“Calgary’s resale housing market saw the country’s steepest year-over-year sales decline among major cities last month, says the Canadian Real Estate Association. Meanwhile, property listings continue to rise. More than 5,800 Calgary properties were for sale on MLS listings this week compared to about 3,600 a year ago. Gary MacLean, a realtor with RE/MAX Real Estate Central in Calgary, said the median and average sale prices of single-family homes and condos in Calgary have remained depressed since peaking in March 2014.”

“‘This occurred long before oil prices crashed,’ he said. ‘The thing that is concerning is we are in our peak listing period of April and May and more and more homes will be coming to market in an already overcrowded market place. Sellers must price their homes competitively. If they are the least bit overpriced, they will just sit there.’”

“Before the crash, investors piled into one large apartment block named after Hanover Square in the West End of London. The Dubai development is 15 minutes from a golf course and the sea and half an hour from the busiest international airport in the world. Speculators made a fast buck by selling off-plan properties for a large profit within weeks of their initial investment - with no intention of ever living there. In 2007 investors put down tens of thousands of dollars but have so far received nothing. Linda Mahoney, one of Dubai’s first Western estate agents, described it as a game of musical chairs. ‘It went on and on and on and there was always another place to sit… In June 2008 the music stopped and the chair wasn’t there.’”

“A surge in house prices and sales since 2013 suggests confidence is returning to Dubai’s real estate sector after its disastrous past. Many in the industry do not rule out another bubble forming. Sunil Jaiswal organised the first international property show dedicated to Dubai. He told me that the question he gets asked most in any show is whether the market will crash. ‘Right now the market is quite stable in Dubai. We haven’t seen excessive growth… Will the market crash? Of course it will. Maybe it’s three months away. I don’t know,’ Mr Jaiswal said.”

“Australia will have a housing surplus by 2017, according to one of those who predicted the current surge in housing activity, Goldman Sachs head of macro-research in Australia, Tim Toohey. Price falls are possible. The managing director of property and building forecasters BIS Shrapnel, Robert Mellor, says that in markets with significant excess supply, prices could fall 5 to 10 per cent. It will have a dramatic effect on housing demand, with Goldman Sachs revising an estimated shortage of 140,000 homes in 2017 into a 75,000 surplus.”

“BIS Shrapnel is no longer pointing to undersupply in many metropolitan markets. Brisbane is heading towards balance, Melbourne has a massive inner-city apartment supply pipeline, South Australia is already oversupplied and Perth faces a ‘massive’ population correction. ‘The primary determinant of net migration to Australia is not the number of illegal immigrants or the number of tourist arrivals, it is the relative strength of onshore versus offshore labour markets,’ writes Toohey. ‘Would you move to a country where you can’t get a job?’”

“Land sales revenue in 40 mainland cities plunged 57 per cent last week, with industry experts saying developers could have chosen to stay out of bidding wars at auctions due to a softening market. China Index Academy said there were 4.17 million square metres of land released for sale last week, 70,000 square metres less than the previous week. Twenty-six of the 40 cities it monitored sold no land last week. ‘Big developers have already built up relatively large land banks that are sufficient for development for next several years,’ said Thomas Lam, the head of valuation and consultancy at Knight Frank. ‘In the absence of fierce competition, land being sold for record high prices may not be repeated in coming sales.’”

“‘For some of these governments, income stemming from land sales could be as high as 60 per cent [of the total],’ Lam said. China Index Academy said land sales revenue generated from the sale of residential sites amounted to 3.6 billion yuan last week, down 69.5 per cent from 11.8 billion yuan the previous week.”

“Former Reserve Bank Governor Don Brash says the Government won’t be looking to bring down house prices too quickly because it would see them voted out of office. His comments come as the bank urges the Government to consider a capital gains tax on property to ease housing pressures, particularly in Auckland where the average sale price is now above $750,000 – almost nine times the average annual household income.”

“Dr Brash says ‘bubble’ is an emotive term, but house prices in Auckland have become out of proportion with incomes in recent years. ‘Once this momentum starts, people assume that it will always go on. House prices haven’t fallen for 45 years in New Zealand, people assume they never will fall and therefore this is a riskless, highly profitable investment.’”

“If the Auckland market is a bubble and it bursts, it won’t only be investors that get burned. ‘The one sure thing is if house prices do return to their normal relationship with incomes, the Government’s gone because a whole lot of property owners will be badly hurt by that process. But who knows? We don’t know how it will end, but we do know that we can’t keep on going as we are now.’”

“The regulator of Fannie Mae and Freddie Mac will direct the housing-finance firms to slightly cut mortgage fees for riskier borrowers. To cover the cost of the reductions, Fannie and Freddie will raise fees on some other borrowers, such as those borrowing for an investment property and some of those who have safer borrowing characteristics, with the intent of the changes to be revenue-neutral for Fannie and Freddie, the people said.”

“Separately, the Federal Housing Administration–which insures loans to borrowers who make down payments of as little as 3.5%–in January said it would cut fees by 0.5 percentage point for most borrowers.”

“The FHFA’s latest decision to lower fees for some borrowers is ‘just starting to look like part of a larger trend, that’s my real concern. What’s next?’ said Mark Calabria, director of financial regulation studies at the libertarian Cato Institute. ‘There was not some single moment or event that got us into the last mess, but the accumulation of lots of errors.’”

Bits Bucket for April 17, 2015

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April 16, 2015

High Prices And A Glut Of New Inventory

KGW reports from Oregon. “Portland’s hot housing market has buyers stepping up their game, and the pressure is forcing some to get personal. Local realtors and sellers say they’ve seen cases, recently, of desperate buyers sending unexpected gifts, like baked goods or wine, and dropping by unannounced. Some are even knocking on the doors of homes, not for sale, and asking to look around! Realtor.com gives a step-by-step guide. It’s so specific, that it instructs the writer to flatter the seller, avoid mentioning future changes you’d make to the home and end with a sincere, yet conversational sign-off.”

“Portland realtor Mary Pahl adds, be truthful about who you are, and trust that the right seller, with the right home, will relate. ‘They want somebody that’s going to come into their home and take care of it the way they did, and that’s important to most sellers,’ she said. ‘So, if you can say ‘This is what I want to do with this. This is how I see myself living in your home’… It just puts them one leg up on the competition.’”

The Washington Post. “The spring home-buying season has started strong in the D.C. region with house hunters scooping up places to live at a brisk pace. Prince George’s and Montgomery counties accounted for 42 percent of the sales in what RealEstate Business Intelligence classifies as the D.C. region, due in part to the high number of foreclosure sales. Those two counties were where 85 percent of the foreclosed homes were sold in the area.”

“The median price for the D.C. region climbed to $400,000, rising to its highest level for March since 2007, which was during the height of the housing boom. Most jurisdictions had median price increases with the exception of Falls Church and Howard County. Falls Church, whose median price soared to $712,500 in February (a 27.9 percent year-over-year increase), saw its median price plummet to $585,000 last month (a 19.1 percent year-over-year decrease). Because there are so few sales in that jurisdiction, the numbers tend to be volatile. Howard County’s median price dipped to $365,162 last month from $400,000 in March 2014.”

The New York Daily News. “It’s raining condos in Manhattan. A stream of uber-luxe new condos is coming to market in some of the city’s priciest locales, finally putting an end to the enduring inventory shortage that’s been pushing up prices. Approximately 5,377 new condo units are expected to hit the market this year, including 1,900 this spring alone, according to data from Corcoran Sunshine.”

“That’s still well below the peak of the last cycle in 2007, when a whopping 8,052 units came on the market, but it’s more than double the number of new apartments that arrived last year and almost 20 times the number that were built in 2011, following the economic crash. ‘It really is a lot of inventory,’ said Andy Gerringer of the Marketing Directors, which specializes in marketing new condos and rentals. ‘It could create a bit of a backlog in the market.’”

The Miami Herald in Florida. “Houses are staying on the market longer in the Miami area than in most other big cities around the country, according to Trulia. The likely culprits? High prices and a glut of new inventory, said Trulia chief economist Ralph McLaughlin. ‘Miami is in this weird stalemate situation where sellers probably don’t want to reduce the price of their units because they don’t want to lose money, but middle-class buyers aren’t able to afford them,’ McLaughlin said. ‘So what we’ll see is homes sitting on the market longer until either sellers decide to lower their sales price or the economy continues to improve and buyers can start to afford them.’”

The Press of Atlantic City in New Jersey. “Atlantic County again led U.S. metropolitan areas in foreclosure activity rates in the first quarter of 2015, and other southern New Jersey counties saw big year-over-year increases too, RealtyTrac said. The new figures reinforce the struggles of real estate markets battered by years of down local economies and a spate of New Jersey distressed properties delayed by previous backlogs and moratoriums.”

“All area counties and New Jersey were up in the first quarter from one year ago. ‘It signifies this is still a market that’s experienced a lot of housing trouble,’ said Daren Blomquist, vice president of market research firm RealtyTrac. ‘It’s not just that (Atlantic County) is the highest but we’re continuing to see these increases in foreclosure activity so it’s still getting worse.’”

National Mortgage Professional on Rhode Island. “The nation’s smallest state is seeing an oversized spike in foreclosures. According to a new report, Rhode Island experienced a 30 percent year-over-year increase in foreclosure deed filings during the fourth quarter of 2014 and a 10 percent increase in 2014 versus 2013. The new report, which was compiled by Roger Williams University’s HousingWorks RI research group also found that 11,609 residential foreclosure deeds were filed in the state between 2009 and the end of 2014, representing 6.5 percent of all residential properties carrying mortgages.”

“‘Nearly 16 percent of Rhode Island mortgages are underwater,’ the report stated, adding that the Ocean State ‘has the second highest percentage of serious delinquent mortgages in New England (Maine was first) and ranks fifth in the nation.’ The report also cited data compiled by Cigna that determined Rhode Island ranked fourth in the nation for homeowners who are paying more than 30 percent of their income on housing costs.”

The Times Herald-Record in New York. “You might think the mortgage crisis would be in the rear view mirror by now, seven years since the outset of the Great Recession. But mortgage foreclosure filings reached 10-year highs last year in Sullivan and Ulster counties, and remained near their peak in Orange County. The increase is partially attributable to court rules imposed since 2011. They require court-supervised settlement conferences between borrowers and lenders, as well as an expansion of civil legal services. That slowed the foreclosure process, and led to a backlog.”

“Lorri Hoolan of New Windsor had a good-paying job as a courier until injuring her back about two years ago. She has been unable to work since then, putting a dent in her family’s income, and they’ve fallen behind on mortgage payments. She sat on a recent afternoon in a hallway of the Orange County Courthouse, where a room is reserved for dozens of foreclosure conferences each week. Hoolan estimates the value of her two-bedroom condominium has dropped $20,000 since she and her husband, Robert, bought it in 2004.”

“‘This is all so embarrassing,’ Hoolan said. ‘I just hope they give me a chance to get back on track and keep the place.’”

“‘We see a lot of people who have an astronomical amount of debt because they refinanced when the market was booming,’ said Faith Moore, executive director of the Rural Development Advisory Corp. of Orange County. ‘They saw their home worth more than they paid; now the house is worth less than the debt.’”

Bits Bucket for April 16, 2015

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April 15, 2015

The Third Episode Of The Global Financial Crisis

A housing bubble report from News day. “Take an evening stroll on either side of New York’s Central Park and you will notice how few lights are on in the newer apartment buildings. That’s because no one lives there. Across the globe, empty luxury apartments darken many of the most desirable cities—Miami; San Francisco; Vancouver, British Columbia; Honolulu; Hong Kong; Shanghai; Singapore; Dubai; Paris; Melbourne, Australia; and London. The reason: The world’s richest people are buying these grand residences not to live in but to store their wealth. In Paris, for instance, one apartment in four sits empty most of the time.”

“Some of these wealthy owners are looking for status, others a good investment. And for rich people in unstable countries, or those whose incomes depend on dubious businesses, holding real estate in foreign countries functions as private insurance. Some buyers use luxury housing to hide criminal proceeds, often acquiring their real estate through shell companies set up in jurisdictions from Wyoming to Panama to the Cayman Islands, which make it easy to conceal ownership.”

“Jane Kim, a San Francisco supervisor, said that in her downtown district ‘a lot of units are sold to international and out-of-town owners, so it is great in terms of property-tax revenues and paying into a general fund by people who do not make much use of municipal services. But it also means we are not filling the needs of people who want to live in the city, because they cannot compete’ for housing due to high prices for both owned and rented apartments, ‘even though they make good money.’”

From Bloomberg on the UK. “As housing crises in London go, it could be worse. Mayfair, the neighborhood favored by Middle East royalty and hedge fund managers, is facing a glut of multi million-pound residences. Thirty-six homes were sold in the area in the six months to the end of March, a 30 percent decline from a year earlier, according to property data provider Lonres. ‘With so many high-profile projects planned, all aimed at the world’s wealthiest, there’s is going to be no shortage of choice,’ said Alex Newall, founder of broker Hanover Private Office. ‘That’s going to put pressure on prices.’”

“‘There’s just too much planned and the market isn’t there,’ said Andrew Langton, chairman of luxury-property broker Aylesford International. ‘These developers may be caught with their trousers down.’”

The National on Dubai. “Dubai’s property market has shown more signs of a first quarter slowdown as new housing comes on stream at a time of slowing sentiment. Figures acquired from Reidin data, confirm a CBRE report last week which showed that average house prices in the city are falling for the first time since the 2008 global financial crisis wiped up to 60 per cent off property values. Some Dubai estate agents already report that they are asking sellers to drop their asking prices by as much as a fifth.”

“‘The first quarter of the year continued to see subdued activity in Dubai’s real estate market,’ said Craig Plumb, head of research at JLL’s Dubai office. ‘As Dubai’s residential market moves towards a period of correction, the next driving force is predicted to be end-users or middle-income earners, as opposed to speculative buyers.’”

This Day Live on Nigeria. “It is estimated that more than 1,000 buildings are vacant or abandoned in various cities in the country and rising. A drive around Ikoyi or Banana Island or Victoria or the Lekki-Ajah corridor, which are traditional areas where people stay for long years on the queue to get a roof over their heads, shows there are an alarming number of vacant buildings, both old and new. The same is applicable to Abuja where several properties in Asokoro, Maitama, Wuse, and Garki are lying empty.”

“In this period of economic crunch, real estate operators agree it is almost impossible to sell or rent vacant housing units and buildings across the country. ‘Those who usually buy property in bulk are not showing interest because the banks are after them to repay their old loans,’ says Ms. Bimpe Adedoyin.”

The Melbourne Leader in Australia. “Foreign investors have snapped up more than 70 per cent of development sites sold in inner Melbourne in the past few years, with most to be developed as high-rise apartments, a planning expert says. RMIT Environment and Planning Professor Michael Buxton said research showed foreign investment was about 13 per cent of turnover in the total Australian real estate market but was much higher in Melbourne.”

“And up to 60 to 80 per cent of the new inner-urban Melbourne apartment market was investor owned, made up of foreign and local investment, he said. Prof Buxton said in the 12 months to June 2013, almost $6 billion in Chinese investment was put into Australian commercial and residential property, the most investment from any foreign country. Other countries that were major buyers of Australian real estate included Canada, the US, Singapore and Malaysia. ‘Up to three-quarters or more of Melbourne CBD inner-urban brownfield land sales in recent years have been to foreign investors,’ Prof Buxton said.”

“Wesley Spencer, director of Rara Architecture, said building developments were often designed with the buyer in mind and not the occupier. He said Melbourne was forecasted to grow by a further 100,000 people by 2035. ‘Given that there are currently an estimated 65,000 vacant apartments within Docklands alone, and inner city development going strong, Melbourne will most certainly be set to saturate the real estate market in terms of supply and demand.’”

The Global Times on China. “China’s second-largest loan-guarantee enterprise has suspended its guarantee business due to a payment crisis, media reported over the weekend, a move which analysts said might have a negative effect on a number of the country’s financial institutions. Hebei Financing Investment Holding Group, which has been beset by financial problems for a long time, suspended all its guarantee business and was officially put under the control of Hebei Construction & Investment Group, the largest State-owned capital investment and operating enterprise in North China’s Hebei Province, news portal cnr.cn reported, citing unnamed sources.”

“The problem arose because a lot of small companies whose loans were backed by Hebei Financing had encountered financial problems and could not pay back their loans, Cao Xiao, a professor of finance at Shanghai University of Finance and Economics, told the Global Times. If Hebei Financing suspends its guarantee business, the 50 billion yuan’s worth of loans will face a risk of default and those financial institutions may suffer a loss, Cao said. ‘It may influence investor confidence toward those institutions, particularly the P2P lending firms which have already faced huge financial problems,’ Cao said.”

“According to news portal nandu.com’s report in December, about 50 P2P lending firms went bankrupt in 2014. The fluctuations in the financial system may continue at a time when China’s loan-guarantee enterprises are facing increased operational difficulties, Zhou Dewen, president of Small and Medium Enterprises Development Association in Wenzhou, told the Global Times. For instance, the number of loan-guarantee enterprises in Wenzhou, East China’s Zhejiang Province, shrunk from around 300 at the sector’s peak to about 30, according to Zhou.”

“Investors in Chinese junk bonds are taking the biggest gamble in at least a decade. Leverage for speculative-grade Chinese companies is at its highest since at least 2004, whether measured by earnings relative to interest expense or total debt to a measure of cash-flow, according to data compiled by Bloomberg using a Bank of America Merrill Lynch index. Borrowers have also piled on the most debt relative to their assets since 2007.”

“The deterioration in credit quality coincides with the slowest annual growth since 1990 for Asia’s biggest economy, and helps explain why Fitch Ratings Ltd. predicts defaults will climb. That’s bad timing for bond investors who swallowed a record $209.2 billion of Chinese-company notes denominated in either dollars, euros or yen last year, Bloomberg data show.”

“The typical high-yield company in China earned an average 2.7 times the interest they paid in 2014 and has about 35.5 times more debt than their yearly operating income, according to data compiled by Bloomberg using Bank of America Merrill Lynch index data. Average debt taken out by the 65 companies in the index climbed to 34.3 percent of assets.”

“‘When credit grows that fast, it’s normally a strong sign misallocations of capital have taken place,’ Sander Bus, the head of high-yield credits, and Victor Verberk, the head of investment-grade credits, at Dutch money manager Robeco Groep NV, wrote in an April 10 e-mail. ‘We wouldn’t be surprised if China, and some other emerging countries that face similar increases in debt, turns out to be the place of the third episode of the global financial crisis after the U.S. and Europe,’ they wrote.”

Bits Bucket for April 15, 2015

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