Tag Archives: real estate bubble

Millions of Americans still trapped in debt-logged homes ten years after crisis

EAST STROUDSBURG, Pa., 2018 (Reuters) – School bus driver Michael Payne was renting an apartment on the 30th floor of a New York City high-rise, where the landlord’s idea of fixing broken windows was to cover them with boards.

Click here to hear Payne’s story. 

So when Payne and his wife Gail saw ads in the tabloids for brand-new houses in the Pennsylvania mountains for under $200,000, they saw an escape. The middle-aged couple took out a mortgage on a $168,000, four-bedroom home in a gated community with swimming pools, tennis courts and a clubhouse.

“It was going for the American Dream,” Payne, now 61, said recently as he sat in his living room. “We felt rich.”

Today the powder-blue split-level is worth less than half of what they paid for it 12 years ago at the peak of the nation’s housing bubble.

Located about 80 miles northwest of New York City in Monroe County, Pennsylvania, their home resides in one of the sickest real estate markets in the United States, according to a Reuters analysis of data provided by a leading realty tracking firm. More than one-quarter of homeowners in Monroe County are deeply “underwater,” meaning they still owe more to their lenders than their houses are worth.

The world has moved on from the global financial crisis. Hard-hit areas such as Las Vegas and the Rust Belt cities of Pittsburgh and Cleveland have seen their fortunes improve.

But the Paynes and about 5.1 million other U.S. homeowners are still living with the fallout from the real estate bust that triggered the epic downturn.

As of June 30, nearly one in 10 American homes with mortgages were “seriously” underwater, according to Irvine, California-based ATTOM Data Solutions, meaning that their market values were at least 25 percent lower than the balance remaining on their mortgages.

It is an improvement from 2012, when average prices hit bottom and properties with severe negative equity topped out at 29 percent, or 12.8 million homes. Still, it is double the rate considered healthy by real estate analysts.

“These are the housing markets that the recovery forgot,” said Daren Blomquist, a senior vice president at ATTOM.

Lingering pain from the crash is deep. But it has fallen disproportionately on commuter towns and distant exurbs in the eastern half of the United States, a Reuters analysis of county real estate data shows. Among the hardest hit are bedroom communities in the Midwest, mid-Atlantic and Southeast regions, where income and job growth have been weaker than the national norm.

Reuters Graphic

Developments in outlying communities typically suffer in downturns. But a comeback has been harder this time around, analysts say, because the home-price run-ups were so extreme, and the economies of many of these Midwestern and Eastern metro areas have lagged those of more vibrant areas of the country.

A home is seen in the Penn Estates development where most of the homeowners are underwater on their mortgages in East Straudsburg, Pennsylvania, U.S., June 20, 2018. REUTERS/Mike Segar

“The markets that came roaring back are the coastal markets,” said Mark Zandi, chief economist at Moody’s Analytics. He said land restrictions and sales to international buyers have helped buoy demand in those areas. “In the middle of the country, you have more flat-lined economies. There’s no supply constraints. All of these things have weighed on prices.”

In addition to exurbs, military communities showed high concentrations of underwater homes, the Reuters analysis showed. Five of the Top 10 underwater counties are near military bases and boast large populations of active-duty soldiers and veterans.

Many of these families obtained financing through the U.S. Department of Veterans Affairs. The VA makes it easy for service members to qualify for mortgages, but goes to great lengths to prevent defaults. It is a big reason many military borrowers have held on to their negative-equity homes even as millions of civilians walked away.

A poor credit history can threaten a soldier’s security clearance. And those who default risk never getting another VA loan, said Jackie Haliburton, a Veterans Service Officer in Hoke County, North Carolina, home to part of the giant Fort Bragg military installation and one of the most underwater counties in the country.

“You will keep paying, no matter what, because you want to make sure you can hang on to that benefit,” Haliburton said.

These and other casualties of the real estate meltdown are easy to overlook as homes in much of the country are again fetching record prices.

 

But in Underwater America, homeowners face painful choices. To sell at current prices would mean accepting huge losses and laying out cash to pay off mortgage debt. Leasing these properties often won’t cover the owners’ monthly costs. Those who default will trash their credit scores for years to come.

DREAMS DEFERRED

Special education teacher Gail Payne noses her Toyota Rav 4 out of the driveway most workdays by 5 a.m. for the two-hour ride to her job in New York City’s Bronx borough.

“I hate the commute, I really, really do,” Payne said. “I’m tired.”

Now 66, she and husband Michael were counting on equity from the sale of their house to fund their retirement in Florida. For now, that remains a dream.

The Paynes’ gated community of Penn Estates, in East Stroudsburg, Pennsylvania, is among scores that sprang up in Monroe County during the housing boom.

Prices looked appealing to city dwellers suffering from urban sticker shock. But newcomers didn’t grasp how irrational things had become: At the peak, prices on some homes ballooned by more than 25 percent within months.

Slideshow (19 Images)

Today, homes that once fetched north of $300,000 now sell for as little as $72,000. But even at those prices, empty houses languish on the market. When the easy credit vanished, so did a huge pool of potential buyers.

Eight hundred miles to the west, in an unincorporated area of Boone County, Illinois, the Candlewick Lake Homeowners Association begins its monthly board meeting with the Pledge of Allegiance and a prayer.

Nearly 40 percent of the 9,800 homes with mortgages in this county about 80 miles northwest of Chicago are underwater, according to the ATTOM data. Some houses that went for $225,000 during the boom are now worth about $85,000, property records show.

By early 2010, unemployment topped 18 percent after a local auto assembly plant laid off hundreds of workers. At Candlewick Lake, so many people walked away from their homes that as many as a third of its houses were vacant, said Karl Johnson, chairman of the Boone County board of supervisors.

“It just got ugly, real ugly, and we are still battling to come back from it,” Johnson said.

While the local job market has recovered, signs of financial strain are still evident at Candlewick Lake.

The community’s roads are beat up. The entryway, meeting center and fence could all use a facelift, residents say. The lake has become a weed-choked “mess,” “a cesspool,” according to residents who spoke out at an association meeting earlier this year. Association manager Theresa Balk says a recent chemical treatment is helping.

 

“A gated community like this, with our rules and fees, it may be just less attractive now to the general public,” he said.

Source: Reuters.com – Reporting by Michelle Conlin and Robin Respaut; Editing by Marla Dickerson SEPTEMBER 14, 2018

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10 Charts That Show How Out Of Whack Things Are In Canada’s Housing Markets

For sale signs line along a road where houses are for sale in Calgary, Alberta, April 7, 2015.

TODD KOROL / REUTERS
For sale signs line along a road where houses are for sale in Calgary, Alberta, April 7, 2015.

Years of rock-bottom interest rates and rising prices have created some problematic conditions.

After years of boom times, Canada’s housing markets are at a turning point. Rising interest rates and tough new mortgage rules have taken some steam out of the market. But job growth is strong and wages are rising steadily, suggesting there will be homebuyers around to keep the market humming.

So which way are things going? That’s really anyone’s guess. But one thing is clear: After years of — let’s face it — unsustainable growth, things in Canada’s housing markets are looking a little messy when it comes to things like prices and mortgages.

Below are 10 charts illustrating just how out of whack things have become. Vancouver’s housing market is looking especially WTF these days, which is why it gets a bit more attention in these charts than other places.

Canadians have never had to shell out more of their income to own a home

THE ECONOMIST/HUFFPOST CANADA

This chart, which uses data from The Economist magazine, shows the ratio of house prices to incomes in Canada over the past four decades. Never have house prices been so disproportionately high when compared to what people are earning. Only years of rock-bottom interest have made this situation “affordable” for homeowners. Which is why rising interest rates should be — and are — a major concern among Canada’s policymakers.

Condo construction is at an all-time high …

BMO ECONOMICS

Construction of condos in Canada is at record highs, which for some experts is a warning of falling house prices ahead, though others disagree, given Canada’s suddenly accelerating population growth. Meanwhile, single-family home construction is in the dumps, driven in part by a near-total collapse of detached home construction around Toronto. Canadians in the largest cities are moving into condos, whether they like it or not.

… But young families don’t want to live in them

SOTHEBY’S/HUFFPOST CANADA

And apparently they don’t like it. In a survey of “young urban families” last year, Sotheby’s International Realty Canada found that 83 per cent of this group would prefer to live in a detached home, if money were no object. Only five per cent would choose to live in a condo. But with detached homes in Canada the least affordable they’ve ever been, 43 per cent of this group have given up on ever owning a detached home, the survey found.

You need to be a one-percenter to own an “average” Vancouver home

NATIONAL BANK FINANCIAL/HUFFPOST CANADA

There’s nothing “average” about buying an average-priced home in Vancouver these days. According to estimates from National Bank Financial, it now requires an income of $238,000 to qualify for a conventional 20-per-cent down mortgage on average Vancouver home. That’s not much less than the $246,000 you would have to earn to be in the top one per cent of earners in the city.

Despite the slowdown in the market, prices remain very high, and now rising interest rates and the new mortgage “stress test” have further pushed up the amount of income a household needs to qualify for a mortgage.

… Because Vancouver homes are comically overpriced

RBC ECONOMICS

This chart from Royal Bank of Canada shows that the cost of home ownership in Vancouver, as a share of income, is the highest ever. For detached homes (the top line), costs are far beyond any previous historical precedent. But condo costs (bottom line) — while elevated compared to historic norms — are not actually outside their normal historic range.

Vancouver’s new distinction: Worst housing market

KNIGHT FRANK

Vancouver used to dominate the lists of world’s hottest housing markets like few other cities in recent memory, but those days are history. Global real estate agency Knight Frank’s most recent real estate index ranked Vancouver at rock bottom among 43 world cities. How the mighty have fallen.

There aren’t enough new residents to prop up Vancouver’s market

RBC ECONOMICS

Demographic shifts are about to give Vancouver real estate a bit of a kick in the pants. The region’s population of homebuyers — meaning adults — is currently growing at a much slower pace than has been the historic norm. Combine this with the above-mentioned record-setting levels of condo construction and the also above-mentioned unreasonably high prices, and it looks like Vancouver’s housing correction could go on for a while yet.

… But Toronto has as much as it can handle

RBC ECONOMICS

Toronto’s housing market is in an uneven slump, with some parts of the market sliding (detached homes) while others keep performing strongly (condos). But the experts are saying don’t expect a major decrease in house prices, because the city is seeing accelerated growth in its adult population. Growth is now near a 15-year high, which ought to put a floor under any price declines in this era of mortgage stress tests and rising interest rates.

Mortgage growth is at historic lows

BANK OF CANADA

Those mortgage stress tests sure have had an impact. The value of mortgages on Canadian lenders’ books rises year after year no matter what, through recessions and boom times alike. Last year, that growth fell to its lowest level since the 1990s.

Investment condos often lose money

CMHC/CIBC/HUFFPOST CANADA

Buying an investment condo has become the national pastime for Canadians with cash, but with prices at these levels, they’re no guarantee of profit.

A study by CIBC and Urbanation last year found that 44 per cent of the condos taken possession of in 2017 in Toronto would rent out for less than the cost of ownership (assuming a 20-per-cent down mortgage). CMHC looked at the high-rise condo towers in Montreal’s downtown core and concluded the same is true for 75 per cent of them.

We weren’t able to find estimates for Vancouver, but given how realtors there are busy trying convince people negative cash flow can be a good thing, we’re guessing it’s pretty much the same there.

Investors can still turn a profit if the resale value rises. But house prices have stopped rising. Buyer beware.

Watch: The extreme measures Canadians go through to buy a home

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Ontario to place 15 per cent tax on foreign buyers to cool GTA housing market: Sources

Ontario to place 15 per cent tax on foreign buyers to cool GTA housing market: Sources

The Canadian Press has learned that the Ontario government will place a 15-per-cent tax on non-resident foreign buyers as part of a much-anticipated package of housing measures to be unveiled today.

The measures are aimed at cooling down a red-hot real estate market in the Greater Toronto Area, where the average price of detached houses rose to $1.21 million last month, up 33.4 per cent from a year ago.

Premier Kathleen Wynne and Finance Minister Charles Sousa have said the measures will target speculators, expedite more housing supply, tackle rental affordability and look at realtor practices.

Sousa says investing in real estate is not a bad thing, but he wants speculators to pay their fair share.

He says the measures will also look at how to expedite housing supply, and he has appeared receptive to Toronto Mayor John Tory’s call for a tax on vacant homes.

Sousa has also raised the issue of bidding wars, and has suggested realtor practices will be dealt with in the housing package.

The Liberals have also said that the government is developing a “substantive” rent control reform that could see rent increase caps applied to all residential buildings or units. Currently, they only apply to buildings constructed before November 1991.

Source: The Canadian Press – April 20, 2017

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Observers air concerns about unrelenting price appreciation in Toronto

Observers air concerns about unrelenting price appreciation in Toronto

By all accounts, the Toronto market’s exceptional performance remains the main contributor of strength to the national housing sector, but a local real estate professional is more cautious of where these continuous increases in demand and home prices will lead to.

A noteworthy example of this outsized growth is a three-bedroom semi-detached home on Palmerston Ave., which got listed on the market for $1.375 million earlier this week. The property was purchased in December 2014 for just $851,750—fully over half a million dollars less than its current price, and representing a sharp 62 per cent appreciation in just 2 short years.

Realosophy president and broker John Pasalis noted that the listed value of the Palmerston home would have purchased a larger and more spacious house as recently as last summer.

“If this is getting $1.4 million what does that mean for anyone who wants to buy in this neighbourhood?” Pasalis mused in a Toronto Star report. “When you see appreciations of 30 per cent a year it generally doesn’t end well. That’s a concerning thing.”

And at the rate it’s going, Toronto’s price growth might not grind to a halt in the foreseeable future.

“My instinct is that Toronto’s going to keep going like this until there’s some outside policy decision,” Pasalis stated.

One policy intervention that has proven effective in another hot market was the 15 per cent tax slapped by the B.C. government on foreign buyers in mid-2016. Since then, Vancouver price growth has seen a significant cooling down from its prior rate of over 20 per cent a year.

However, such a measure in Ontario would only have a limited impact at present, considering that less than 10 per cent of real estate investors in Toronto are foreign nationals.

“The numbers are still in the mid single-digits from what we can tell. The foreign demand we have is more from immigration, people that are choosing to raise their families in Toronto,” Re/MAX Hallmark Realty managing partner Gurinder Sandhu said.

“There’s political certainty, there’s economic certainty and, when you look at all the uncertainty around the world, all of a sudden Toronto becomes that much more in demand.”

Source: MortgageBrokerNews – by Ephraim Vecina | 20 Jan 2017
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What’s in store for Canadian real estate in 2017?

We have the answers to all your investment questions in our Property Forecast Guide — the industry’s very own crystal ball, which will appear in the January issue of CREW.

Think of the guide, which spans dozens of pages, as your handbook for investing in real estate in 2017. Want to know what’s in store for the economy? How about hot, up-and-coming areas? This guide will help you get rich – or even richer – by giving you the best research, right in your lap. 

We spoke to veteran investors, respected economists and profiled every market and every trend that investors need to know about.

Below is just a sample of what you can expect.

Dan Campbell on GTA and the surrounding area

Tech Triangle (KWC) 
Strong and growing economy, stable and growing post-secondary institutions, airport, expanding highways, increase Go Train service and now a rapid transit system all point to a strong year for the KWC real estate market. Rental demand will continue to grow, especially around the new LRT and Go Train stations as well as the renewed downtown cores. This region is growing into Millennial Central and that bodes well for market demand for decades to come.

Hamilton 
It is still a market where investors and homeowners need to have very localized knowledge in order to ensure they aren`t buying in neighbourhoods that will underperform the market. 2017 should begin a slowing of demand from investors and landlords, but increased Go Train service, a renewal of Hamilton`s reputation and the promise of LRT will keep interest high.

Barrie and Orillia 
Although two very separate cities, they are economically co-joined. In one year Barrie will lead in growth and housing demand, and in the following Orillia will. Orillia looks to grab the lead in 2017 with the Hydro One purchase of the local utility and the development of a high-tech research center bringing in above average salaried employees. The demand in Barrie’s mid-range market should continue to be strong as new mortgage rules push people out of Vaughn and Toronto.

GTA 
Anything ground-oriented (single family homes, semis, townhomes) are poised to outperform the rest of the market, especially given the Provincial Places to Grow act limiting the amount of new-land sprawl, thus driving up the price of developable land within these constrained boundaries. Condo demand will continue with a movement to larger and therefore further from the core units beginning to feel the upward demand pressures as young families begin to grow and require more room. Units located within 800 Meters of TTC subway stations or 500 meters of street car stops will feel the highest demand increases in both rental and purchase in 2017.

Canadian Real Estate Wealth is the country’s premier guide for real estate investors. It includes the most timely and in-depth market analysis, delivered right to your doorstep six times a year.

Source: by REP 11 Nov 2016

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4 Factors That Will Determine Canada’s Real Estate Market In 2016

REAL ESTATE GRAPH

Other than the weather, 2016 has not been particularly kind to Canada.

The Loonie is the lowest it has been in 15 years, a barrel of gas is trading for less than $30 and Canada’s National Men’s Junior hockey team didn’t even reach the semi-finals! Compare these factors against the rising U.S. greenback and you get one gloomy economic forecast. However, there is one section of our economy that seems to be unaffected, as the real estate market is showing little signs of slowing down on a national level.

Despite the troubling forecast, don’t expect any price breaks in Canada’s real estate market for 2016. TREB is predicting an increase in the average price of a home to rise by nearly 10 per cent, a number skewed by big markets where demand outweighs supply like the GTA.

The Canadian housing market is coming off a truly remarkable run, and RentSeeker is here to help you prepare for the road ahead. These will be some of the biggest factors affecting the housing market in 2016 and must be considered by anyone who is currently in or thinking about entering it.

Oil Prices

Oil prices have hit lows we haven’t seen in decades as the price of a barrel plummeted more than 60 per cent since June of 2014. Currently trading for less than $29 a barrel, the ‘bottom of the barrel’ seems more like an endless pit.

Certain oil producing countries and companies have flooded the market with a surplus of supply, driving down the cost of crude. As a result it’s been a downhill slide for the Canadian energy sector that plays a huge role in the national economy.

The oil, gas and mining sector accounts for more than a quarter of the national GDPand many workers have been laid off as Canadian oil production has come screeching to a halt.

When the energy sector is in good shape, so is real estate, particularly in Western Canada. However, the market in British Columbia is soaring as house prices in Vancouver continue to skyrocket, although Alberta is definitely taking a hit after experiencing numerous years of growth.

The Low Loonie

The Canadian dollar is worth less than 70 cents U.S., a rate we haven’t seen since 2003 — a time before Netflix and when most people didn’t have Internet access on their cell phone.

Furthermore, our currency has lost more value against the U.S. than other major currency, including the Pound or Yen, leading some economists to state that we’reflirting with recession.

Depending on where you live in Canada, these overwhelming numbers will have a drastic affect on the housing market in your area. At this point, many economists believe the worst is still yet to come, and that may be tough to believe for those living in Western Canada.

Many companies in Canada are suffering from increased expenses and people are loosing jobs. The Toronto Star has shut down its printing plant, and Goodwill shut down 16 stores in Ontario — two examples of companies that have experienced hard times and are cutting jobs.

When Canadians lose jobs, the real estate market suffers. We will see how the low Loonie affects the unemployment rate and which provinces will be hit the hardest.

Borrowing Costs

Mortgage rates can’t get much lower! The low, low Loonie and price of oil have been major contributors to muted borrowing costs for Canadians. Mortgage rates are extremely affordable, making it easier than ever for many new home-buyers (despite the modest increase in a minimum down payment for properties over $500,000), especially in smaller markets outside the Big Three (Vancouver, Toronto, Montreal).

This CBC article states that “many economists predict Bank of Canada governor Stephen Poloz will be forced to lower the interest rate yet again because low crude prices are cutting into Canada’s economic growth.”

As long as borrowing money is cheap, real estate prices won’t be. For those who are priced out of the housing market, while rents have also risen across the country, it is the only option for many. Apartment finders like RentSeeker.ca and classifieds like Craigslist and Kijiji are a good place to search for those looking for an apartment to rent across the country.

Foreign Investment

Foreign investment in the Canadian real estate market has always been a double-edged sword. For those who own property, increased foreign investment has been welcomed as they have seen their own property value increase. However, for the majority of Canadians who rent, foreign investment means increased real estate prices that were already unaffordable.

Many people who have lived in Vancouver for years are being driven out of the city due to over inflated real estate costs, and locals are demanding government intervention. A prime example of the double-edged sword, Dirk Meissner of theCanadian Press pointed out that the B.C. Finance Ministry could lose $1 billion in real estate sales and nearly 4,000 construction jobs if the government intervenes to minimize foreign investment activity.

For better or for worse, foreign investment is a major factor, and a low Canadian dollar makes foreign investment very attractive. Don’t expect a decrease for in-demand cities like Vancouver, despite a gloomy economic outlook.

Our new prime minister inherited a difficult situation on the economic and political front, and the Liberal Party has a tough road ahead. The Liberals have traditionally not been a “finance first” organization, and the current economic situation is one of the worse we have experienced in decades.

Rona Ambrose has clearly stated her concerns that a “very new and untested” Liberal Government isn’t prepared to deal with the future, but let’s hope she’s wrong.

Despite the rocky start to 2016, our real estate market isn’t showing signs of slowing down. We’ll just have to wait and see how things turn out.

Source: HuffingtonPost.ca Posted: 01/22/2016 2:25 pm EST

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O’Leary: Real estate makes for a poor asset given current market conditions

In an interview hosted by Business New Network, O’Leary Financial Group Chairman Kevin O’Leary shared his take on the current housing market; he revealed that he does not see the 30 to 50% correction that other industry experts are anticipating, but still considers real estate a very poor investment for this cycle.

“You’d be an idiot to buy a house,” O’Leary said during the interview.

He reasoned that investing in real estate is a bad decision, stating that he does not think that homes would considerably appreciate in value within five years. He also noted that buyers still have to pay real estate taxes and transfer taxes on the land, as well as pay their brokers 3 to 5%. All these closing transaction costs make real estate one of the more expensive asset classes to trade.

O’Leary surmised that it would cost investors between 8 to 12% to trade real estate assets. He also added that given the way things are, the chance an investor would enjoy a 12% appreciation over five years on a property is next to zero.

For close to 18 years, Canada has experienced a housing bull market, with perpetually low rates encouraging both homebuyers and speculators to snap up properties with almost zero capital. O’Leary expects that at the very best conditions will plateau soon, slightly improving chances of material appreciation on houses.

He goes on to mention the potential housing bubbles other pundits have observed in areas such as Vancouver, Montreal, Ottawa, and Toronto, where “shoebox condos” have begun sprouting to accommodate the large number of immigrants and/or millennials looking to move into the cities. With too many buyers and speculators participating in these popular markets, only time will tell when the bubbles will eventually burst.

O’Leary suggested that investors look into short duration, investment-grade corporate debt, as he sees it as an even more attractive and safer option than real estate. He also suggested to prospective homebuyers to look into renting instead, so that they can invest their cash into other things.

Source: MortgageBrokerNews.ca  04 Dec 2015 

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