Entries Tagged 'Bubble' ↓

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One of the questions that often arises is why some cities experience such huge price swings, or bubbles, while others tend to remain fairly constant. Edward L. Glaeser of the Rappaport Institute for Greater Boston at Harvard University has put out a new study that ties housing bubbles to restrictive zoning. Cities such as Atlanta are much more open to development and thus have lower price swings than cities that are restrictive like Boston.

If you are a real estate professional or investor it is well worth taking the time to read the extract as it probably can guide your decision making processes in the future.

Here are the four major points that Glaeser makes in summarizing why the housing bubble impacts the Boston area so greatly and the impact of these bubbles.

• First, limits on new construction are responsible for the declines in Massachusetts’s population reported in the recent Census estimates.
• Second, restricting housing supply leads to greater volatility in housing prices.
• Third, significant price increases associated with restricted supplies of housing subsequently appear to lead to declines in employment and income.
• Finally, high housing prices change an area’s demographic mix.

Click here to read the whole report.

Sorry to say the retort to the housing bubble bloggers is not going to come from me but rather Seeking Alpha’s Ben Holdsworth. I have spent part of the morning trying to paraphrase his column and realized that there is no way to do it justice coming from this humble scribe.

So if you have 5 minutes, read Ben’s article here and think about it. The news may not be as dire as the press and others would have you believe for the American public.

No “doom prophet” has mentioned the Mortgage Bankers Association weekly mortgage applications survey in the deluge of economic fear-mongering. They don’t want you to pat attention to it – or grasp its ramifications. The survey compiles data on about 50% of US mortgage applications submitted the previous week. The “survey contains 15 indices covering application activity for fixed rate, adjustable rate, conventional and government loans for home purchases and refinances. A new report is posted every Wednesday with the previous week’s market activity.” via Seeking Alpha.

While the United States struggles with a housing slowdown in a strong economy, London may be getting a double whammy as property investment funds are liquidating or reducing holdings all at the same time. Property values in parts of the city are down nearly 15 percent and investors are pulling their money out of the funds that own many of the properties.

When investors want to cash out, the funds have to liquidate some of their assets. And while all this is going on, Dubai is making the strategic decision to move investments from London to Asia putting more inventory on the market when it can least afford it.

So while things in the United States are rough, the real estate markets across the pond in England may be in more turmoil for the near future than anything we have run into.

The Dubai government, which owns about £10bn in real estate around the world, is considering selling properties in London just as UK institutions are struggling to offload assets to meet investor outflows.
Through its Dubai World investment vehicle, the Gulf state plans to rebalance its portfolio to help stave off the effects of the sub-prime crisis. Its chief investment officer, Yu Lai Boon said: “We are too heavily weighted in the US and Europe. We want to balance the portfolio slightly more towards Asia.”
The asset re-allocation comes after Dubai World said it would merge its Istithmar property fund with its Dubai-based developer Nakhel. Istithmar owns One Trafalgar Square in London’s West End, which it bought for £155m in October 2005. via the  Telegraph.

Tags: London+Real+Estate

There has been a surge in bankruptcies in Massachusetts as families try to save their homes from foreclosure. The attorneys involved in the bankruptcy process say most of those coming in are families with adjustable loans who are now unable to make their mortgage payments and pay their other bills. In an effort to save their homes they are filing bankruptcy to negate the rest of their debts.  

Local bankruptcy attorneys said the reason for the bankruptcy surge is simple: Homeowners are struggling with high subprime and adjustable-rate mortgages, as the housing market tanks in some parts of the state.

“It’s almost all (related to) mortgages,” said William McLeod, a Boston bankruptcy attorney who says his practice is now going stronger than before the 2005 changes to the nation’s bankruptcy laws. Those changes were supposed to reduce the number of people seeking bankruptcy protection.  via BostonHerald.com.

I wrote back in November, 2005 that Massachusetts was especially vulnerable to a downturn as many of the residents were using the gains in housing as a bank account. Cash out equity was 14 percent of the disposable income in the state for 2004. Now we are paying the piper.

The site that will symbolize the excesses of the last housing boom and the excesses it can breed, iamfacingforeclosure.com, has shut it’s doors.

I have not written much about the travail of Casey Serin and his very public entry into the depths of mortgage fraud, foreclosure, and most likely a long and painful process of legal and financial distress. He has done all this very publicly and anything I would do would have just fed his ego and led him further down the path of shame and ruin.

And I am not gloating as at that age I also thought that I was smarter than the rest of the world and made some dumb business decisions. But I am glad that Casey decided to shut down the site and focus on his family and life and not lead it in the public eye.

So tonight, if it is your style, say a small prayer for the guy and hope that all ends up okay for him and his family. My guess is they will need every bit of it.

Talk about a housing bubble collapse. The sale of property on the moon fell significantly over the past quarter after Chinese officials stripped the real estate company of its license to sell acres of land online. The company, Lunar Embassy was selling the properties for under $40 an acre.

There are reports that you can still buy land on the moon in the United States, but with such a depressed market prices are now starting at $20 an acre and are expected to fall quickly.

So to summarize, Moon real estate bubble collapsing, news at 11. Now we return you to your regular programming.

In response to it having its business license revoked by the Haidian District People’s Court in 2005, Lunar Embassy sued the Beijing Administration of Industry and Commerce. However, its appeal was lost due to previously enacted space law. The Chinese court that heard the case, Beijing First Intermediate People’s Court, cited an international treaty that China signed in 1983. The treaty stated, “…outer space, including the moon and other celestial bodies, is not subject to national appropriation by claim of sovereignty, by means of use or occupation, or by other means. The exploration and use of outer space shall be carried out for the benefit and in the interests of all countries.” [India News]
However, Lunar Embassy still has an active Web site: http://www.lunarembassy.com/. It appears that the company is still selling lunar property to other countries around the world, just not in China anymore. The company markets itself as, “The founders and leaders of the extraterrestrial real estate market.”
It appears that U.S. citizens can (supposedly) buy an acre of the Moon for $19.99,. Of course, lunar tax will cost you $1.51 and shipping and handling of the paperwork is an additional $12.50. via iTWire

Housing sales are down in 40 states scream the headlines. My reaction is Thank God Almighty.

Look folks, we know that the marketplace got flooded with a combination of forces. Low interest rates, easy (non existent?) mortgage requirements, and speculators who came over from a depressed stock market. If that is a surprise to anyone, raise your hands. When sales activity is breaking records like it did in 2005 by such a large margin there is no place to turn.

Some call it a bubble and I think they were right. But it was not the bubble that others hope for. Many naysayers thought that the bubble was one you would see coming out of the mouth of a 10 year old just before mom had to start picking gum out of her hair. I saw it as the really cool bubble that all your friends said “awesome” to, and then you knew it was time to start chewing the gum to get it back so you could try again.

My impression, we had a period of exuberance. Some markets that were speculator driven such as Florida and Arizona have seen the volume drop severely. Other markets that were over bought due to panic buying, San Diego, Washington, and Boston, are facing some appreciation loss.

To me, watching the landscape, I am happy. There is a great deal of appreciation out there. Mortgage companies and the government are figuring out that stated income loans to those receiving welfare is not a smart move. The subprime lenders are paying for their greed but rational lending is reasserting itself.

Builders have backed off and slowed production to realistic levels. Interest rates are finding their equilibrium. The money that was pouring into real estate by speculators is heading back to the stock market and it is having a strong year, protecting the country against a real estate driven recession.

And for the most part, housing has held onto its gains. If you had said all these things on some sites you would be laughed out of town and still may be. And they will use the tools that politicians have used for years to illustrate individual cases (or narrow regional pockets) where some have gotten hurt. But folks, this is capitalism. It is rough and tumble. People make and lose money every day in the capital markets.

If you bought a home that you know you could not afford but were hoping that appreciation would protect you and you were caught. I am sorry, but you placed a bet and lost. However, for the majority of buyers out there, they have seen a great 5 year window of appreciation that is not backsliding significantly. That is wonderful as the market catches up.

WASHINGTON - The slump in housing deepened in the final three months of last year with sales falling in 40 states and median home prices declining in nearly half of the metropolitan areas surveyed, a real estate trade group reported Thursday.

The National Association of Realtors report showed that the biggest declines were in former boom areas.

The biggest percentage decline occurred in Nevada, a drop of 36.1 percent in the sales pace in the final three months of 2006 compared to the same period in 2005.

In other former boom areas, Florida saw sales drop by 30.8 percent, in Arizona sales were down 26.9 percent and they fell 21.3 percent in California.  via BostonHerald.com.

After years of extrodinary housing valuation gains, the Washington DC is in the midst of a correction according to local experts. I am sure for some segments of the market, mainly condos, the market looks more like a crash. However, when the marketplace is looked at as a whole, there is a very natural and logical progression going on.

First the market experiences a growth cycle. Then when demand is nearing its peak and new inventory is low, the marketplace bubbles. This bubble typically is not not sustainable for long because the combination of new inventory and logic enters the marketplace and it slows.

Once the market slows a little, naysayers and pundits come out of the woodwork and into the media proclaiming the end is near. Adding to that a glut of inventory from developers that have built for last years demand, the market slows and buyers are not feeling pressured to purchase. But, once the inventory dries up a little, and praying interest rates do not get squirrelly, the market regains its equilibrium and modest and sustainable gains become the norm.

The last 12 months have been tumultuous, said representatives of the three local real estate associations, with prices during 2006 falling for the first time in years.
Housing values experienced double-digit growth between 2000 and 2005, but a spike in inventory and rising mortgage rates kicked the once white-hot housing market into a slump in 2006, they told reporters in Washington Thursday.
In November, for example, prices for single-family homes were down 1.4 percent over the previous year. By contrast, housing prices increased 19.6 percent from November 2004 to November 2005. Condo prices, which shot up 24 percent from November 2004 to November 2005, were down 5.3 percent in November of this year.
Northern Virginia was hardest-hit in 2006 with prices dipping as much as 5.7 percent year-over-year in September — a figure that outpaced national numbers. Montgomery County, Prince George’s County and the District fared somewhat better. While condo prices dipped, single-family homes in those three jurisdictions saw slight appreciation in 2006.
But despite decreasing prices, economists and industry officials continued to stress that market conditions were a “correction” — not a “crash” ­— that had to happen because prices were appreciating at an unsustainable level. Housing prices should bottom out soon and begin to appreciate again — in the single, not double, digits — in the spring of 2007. via the Examiner.com.

In an interesting confluence of events, the hottest tech and business story (YouTube),  top athletes (Agassi and Steffi Graf), and the biggest story in real estate (the housing bubble) have all come together in one neat package.

A top investor in YouTube, Bill Bullock,  made a bundle with the sale for 1.65 billion to Google last week and decided to buy the 20 million dollar Tiburon home of Andre and Steffi Graf that overlooks San Francisco Bay. The sale was for 3 million dollars less than the couple had paid for the home 5 years ago, giving ammunition that the housing bubble has to be in full force to those who wish to believe such things.

The 13,000-square-foot estate is being sold to Stuart Peterson, the chief of a hedge fund that invested early in the YouTube video-sharing Web site, according to Bill Bullock, whose real estate firm represents the couple. YouTube agreed last month to be acquired by Google for $1.65 billion.
Agassi and Graf, who live most of the year in Las Vegas, had been asking $24.5 million for the property, which features 11 bedrooms, 11 bathrooms, a home theater, two pools, a tennis court and helicopter landing pad.
The cost of upkeep was a factor in the sale, Bullock said. via The Seattle Times

Yale  Economist Robert Shiller is projecting a slower and declining real estate market  in the coming year as the real estate industry has experienced one the  of the  biggest booms in history. The economist is the  co author of the Case-Shiller real estate index  and is considered to be one of the top voices in real estate analysis.

In justifying his pessimism, he pointed out that price increases have far out paced rises in construction costs, rents and income. In addition, inventory levels are up, as are interest rates and real estate holdings as a percentage of the gross national product.
All these metrics would indicate that prices are way overblown and due to slow. But that has not happened on a wide scale, though there has been recent weakness in some markets, including Boston and San Diego.
“Home prices lately have done something really remarkable,” said Shiller. “This is the biggest boom the United States has ever seen.”
The only other market the current one can be compared with, according to Shiller, is the boom following World War II when returning veterans got married, started families and bought homes. But that was a much more fundamental event, one driven by strong demand.
This latest one, says Shiller, is a speculative boom. “It’s an uncertain situation,” he says. “It looks like a down cycle that might continue down or it may bounce around. I will not make a forecast but this pattern suggests risk.” via CNN Money.