October 2, 2014

An Attitude That Prices Have Recovered Too Quickly

The Napa Valley Register reports from California. “The average sold price of a Napa County home declined 9 percent from $522,500 in July to $475,000 in August, according to Bay Area Real Estate Information Services. During the same time period, the number of homes sold decreased 31.5 percent, from 146 to 100. ‘The months of July and August were much slower than the previous months,’ said Nadia Valenzuela, a Realtor and current president of the Napa chapter of the North Bay Association of Realtors. She attributed that slowdown to reasons that include families going on vacation during the summer, a shortened summer school vacation period, ‘and buyers watching the interest rates and viewing the inventory to see if prices would reduce to get a better deal,’ she said.”

The Union Tribune. “The pace of home price appreciation continued to slow in San Diego County in July, a time of year usually thought of as summer peak buying season. The S&P/Case-Shiller Home Price Index showed Tuesday that from July 2013 to July 2014, home prices in San Diego rose 8.3 percent, down from the 10.2 percent annual gain in June. The pace has been slowing since August 2013, when foreclosure resales pushed annual appreciation to 21.5 percent. ‘It was kind of an outlier in terms of typical summer activity,’ said Mark Goldman, a loan officer and real-estate lecturer at San Diego State University. ‘We had very low inventory and yet prices were still very soft.’”

The Los Angeles Daily News. “The summer homebuying season slipped into the deep freeze across the San Fernando Valley in August, as sales for that month dipped 15 percent to a record low, a trade association said. Sales of previously owned homes fell from 561 a year ago to 487, the lowest for an August since record keeping began 30 years ago, said the Van Nuys-based Southland Regional Association of Realtors.”

“‘It’s not that people don’t want to buy, or that they don’t have the money or a job, or fail to recognize that interest rates remain low,’ Roger Hance, president of the association, said in a statement. ‘Instead, there is a hesitancy, an overall attitude that perhaps prices have recovered too quickly. Buyers want some assurance that they’re not purchasing at the top of the current market, and sellers have to be realistic on where they set their price.’”

The Pacific Standard. “According to Nielsen, HGTV has one of the most affluent viewerships in extended cable. 75 percent of the total viewers are already homeowners. So HGTV’s is a uniquely well-off viewership, but it’s also a uniquely committed, or, perhaps, compelled viewership. The relatively recent addition Flip or Flop show is as follows: Tarek and Christina El Moussa were high-living—extremely attractive—Orange County realtors with a baby on the way, and then the housing bubble burst. After their jobs went down the toilet, the El Moussas decided to start flipping houses.”

“Each half-hour episode works the same way. First, Tarek and Christina are shown doing research on a property they can buy at auction. The plan is to buy low, renovate, and sell high enough to both recoup expenses and make a profit. But—and this is something of an anomaly on HGTV—it doesn’t always work out. Not that infrequently, the episode ends with a voiceover saying that, after three or four weeks on the market, the house is still unsold. Tarek and Christina, in other words, look like they might be f***ed.”

“And as much as we viewers may have an impulse to know whether the El Moussas make it out alive, each new episode erases the past, starts the couple off anew, and any accumulated capital, debt, or even expertise stays neatly contained within the previous episode. The ungenerous way of characterizing this would be to say that HGTV is selling a capitalist fantasia that would be severely complicated, even frequently unspooled, if it were to be extended past the space of the episode.”

The Imperial Valley News. “United States District Judge Lawrence J. O’Neill sentenced Julie Dianne Farmer, 46, of Bakersfield, today to three years in prison, to be followed by five years of supervised release, for her involvement in an extensive mortgage fraud scheme that ran from January 2004 to September 2007, United States Attorney Benjamin B. Wagner announced. Judge O’Neill ordered her to pay $2,914,331 in restitution and to forfeit $15 million.”

“Together with co-defendants David Crisp and Carl Cole, Farmer oversaw and managed a conspiracy to defraud residential lenders. They used straw purchasers to acquire properties at inflated prices with funds borrowed from lenders, often using 100 percent financing and based on false and fraudulent loan applications.”

“The conspirators frequently resold the properties from one straw buyer to another, each time at an inflated, higher price in order to extract the purported increased ‘equity’ from the property for their benefit. Ultimately, most of the properties were foreclosed upon after the defendants failed to make the mortgage payments when due.”

“‘Today’s sentencing is the result of a culture of greed and opportunism that saturated a Bakersfield real estate company,’ said U.S. Attorney Wagner. ‘The owners of the company have been held accountable with lengthy prison sentences, but they could not have accomplished their crimes without the knowing and willing help of many within their organization.’”

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October 1, 2014

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September 30, 2014

The Price Is Too High, Will Keep Going Up

A report from China Daily. “China will abolish all home purchase restrictions in the next 12 months and cut at least one policy rate in the first half of 2015 or before, said Shen Minggao, head of China research with Citigroup Inc. ‘Look around the world. No country keeps monetary policy unchanged when a correction starts in the property sector,’ Shen said in an interview. Most people agree that China’s property market is cooling, but they are divided about how the government should react. Some said more easing would further inflate the property bubble and lead to a systemic financial crisis. ‘Sure, there is a bubble, but the bubble does not have to burst now,’ Shen said.”

The Australian. “Sydney couple Daniel Yuen and Hua Ping Xu recently purchased a two-bedroom apartment in inner-city Sydney, and Mrs Xu said while prices were ‘ridiculous’ she had confidence in the market. ‘Honestly, my husband and I still believe the market will keep going up, we definitely think the price is too high, which means a lot of first-home buyers will struggle to afford to buy, but it is what it is,’ she said.”

“The couple paid $885,000 for the apartment in the Mezzo development in Glebe, but haven’t decided whether they will move into the unit once it’s completed.”

Today Online on Singapore. “With more than 20,000 non-landed private homes expected to be completed in each of the next two years, yields are expected to be further compressed. Vacancy rates of non-landed private homes have already been rising for five straight quarters to 8.3 per cent in the second quarter of this year. ‘We have noticed that many people are choosing to rent first and hoping that prices will come down later on. They sell off their properties and rent before getting their next home. We are also seeing people signing shorter leases because they are hoping for rents to come down,’ said Mr Chris Koh, director of property firm Chris International. ‘What we are facing now is oversupply that’s going to put a toll on the market because tenants will be spoilt for choice.’”

The Malaysian Reserve. “Iskandar Malaysia, the main southern development corridor in Johor, is seeing the formation of a housing bubble as a result of Chinese developers that have been flooding the property market with masses of projects. RHB property analyst Loong Kok Wen said the formation of a bubble could be seen in Iskandar Malaysia.”

“‘We could see a formation of a bubble as property agents are offered 5% to 8% of commission from the usual 2% to sell the property. The ones that are not doing so well are the high-rise properties in which there is oversupply by the Chinese developers, which has led to a supply glut,’ said Loong. Loong, however, cautioned that it is not necessary property prices will fall as the ability of the Chinese developers to hold on to the property will be dependent on their financial strength.”

And from AFP. “Ireland is mounting a spirited fightback from economic collapse but as recovery takes hold, a housing shortage has sparked talk of another dangerous property bubble. Despite almost two years of trying to find a family home with her husband and their young baby, Karen Creed has been unable to find an affordable and suitable property. ‘I’ve witnessed panic bids taking place on a first viewing and I got so caught up in the panic at one point that I was going to put a deposit on a house before I had even seen plans or stepped inside a show house,’ she told AFP.”

The Telegraph. “On a global level, growth is being steadily drowned under a rising tide of debt. The conclusion of the latest ‘Geneva Report,’ an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers of the big challenges facing the global economy, aptly titled ‘Deleveraging? What Deleveraging?,’ points out that far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further.”

“Reduced mortgage finance during the banking crisis temporarily succeeded in capping and partially reversing the growth in UK household debt. Yet with a reviving housing market, these reductions may have come to an end. In the meantime, the government has been piling on borrowings like topsy. The UK remains the fourth most highly indebted major economy in the world after Japan, Sweden and Canada, with total non financial debt of 276pc of GDP. The US is not far behind with debt of 264pc of GDP.”

“The real stand-out is China, which since the crisis began has seen debt spiral from a very manageable 140pc of GDP to 220pc and rising. The speed of the increase, combined with the fact that it is largely private sector debt, makes a hard landing virtually inevitable. The only way the world can keep growing, it would appear, is by piling on debt.”

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September 29, 2014

The Sky Is Not The Limit

Bloomberg reports on New York. ‘Sales at One57, the ultra-luxury Manhattan condominium tower that set off a high-end residential construction boom, have slowed to a trickle amid competition from newer properties reaching the market. ‘This is not a normal pace,’ president of New York-based appraiser Miller Samuel Inc., said in an interview. ‘This building had many price increases when it was the only building out there, so maybe they overdid it. In other words, the sky is not the limit.’”

The Virginia Connection. “Many Potomac homes — particularly those selling for more than a million dollars — are remaining on the market for months without so much as an offer — or maybe even a buyer gracing their doors. Some sellers are scared, confused and concerned, wondering why their homes are not selling and trying to decipher what they need to do to make their home more attractive to buyers. Realtors Alison Ross Tompkins cites sellers who ‘came out of the gate earlier this year, and thought this was the year to sell. They put their homes on the market and were overly optimistic, thinking that prices had rebounded. They priced their home too high and as sellers flooded the market, the supply of housing went up – and as the supply increased, the prices went down.’”

The Orlando Sentinel in Florida. “Florida has long led the nation for attracting the greatest share of homebuyers from other regions of the world. Statewide, Canadian buyers commanded 32 percent of the international market. But looking ahead, Canadians’ interest in the Sunshine State may wane now that foreclosure bargains have started to disappear and prices have begun to stabilize. Matthew White, broker associate Sloane Realty LLC of Lake Mary, said he has represented a number of Canadian investors and sees some of them selling properties they purchased during the downturn.”

“‘Those buyers are looking for the kind of prices we had a year ago or two years ago. And those prices don’t exist anymore,’ he said.”

The Las Vegas Sun In Nevada. “Las Vegas homebuilders are stuck in the doldrums as buyers continue to shy away from hefty price tags, according to Las Vegas-based Home Builders Research. President Dennis Smith attributed the decline in permits to processing delays. At least some local builders have slashed prices recently, offered buyers more perks and boosted agents’ sales commissions, so they’d steer clients to construction sites. Brokers, meanwhile, have told Smith that plenty of people are looking at homes but not biting, indicating ‘a healthy dose of price resistance,’ he said.”

The St Louis Post Dispatch in Missouri. “St. Louis real estate agents were hoping for a summer revival in sales and prices, and for a while it appeared as though they might get it. They didn’t. Russ Nolting, CEO at Keller Williams Realty, noticed another phenomenon: Despite the lack of homes on the market, more listings are expiring with no sale, and homes are selling significantly below the original asking price. Nolting suspects those homes were priced too high to begin with. Agents aren’t trying hard enough to dissuade sellers who want to an unrealistic price, he said.”

“‘The desperation of agents to get the listing is causing them to side with the seller rather than side with the data,’ he said.”

The Fresno Bee in California. “A couple years of fast-rising home prices and sales in Fresno and other California cities is showing signs of slowing down and hitting a plateau in 2015, said Leslie Appleton-Young, chief economist for the California Association of Realtors. The overall issue is jobs, Appleton-Young said at a reception at the Fresno Convention & Entertainment Center with members of the Fresno Association of Realtors. ‘If you were to ask me what is the one key variable for kind of gauging the strength of the market going forward, I would say it’s jobs and job creation,’ she said.”

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September 28, 2014

HBB PodCast 1

Here’s the link to the podcast with Jack McCabe. This was recorded on September 17, 2014.

And check out this HBB guest editorial, posted on September 15, 2013.

The Next Real Estate Bubble Is Already Underway


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September 27, 2014

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September 26, 2014

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September 25, 2014

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