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Home Prices Jump in January

Home prices rose 9.7% in January, compared with the same month a year ago. That was the largest monthly increase since April 2006, according to research firm CoreLogic (NYSE: CLGX). The firm had previously forecast a rise of 7.9%. The data includes sales of distressed properties.

Month-over-month, January prices rose 0.7%, including distressed home sales. Excluding distressed sales, January prices rose 1.8% compared with December, and the year-over-year price also rose by 9%.

CoreLogic expects February housing prices to rise 9.7% year-over-year and to drop by 0.3% month-over-month as the seasonal slowdown in home sales heads into its fifth month. Excluding distressed sales, the year-over-year increase for February is forecast at 11.3% and the month-over-month estimate improves to a rise of 1.8%.

The company’s chief economist noted….”

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Tokyo Office Market Begins to Erase Two Decades of Malaise

Tokyo’s office market is showing signs of recovery after a two-decade decline, prompting companies such as Apple Inc. and Morgan Stanley to relocate before rents rise and vacancies fall.

Real estate broker Jones Lang LaSalle Inc. and Barclays Plc are forecasting leasing costs for prime office space will climb this year and next. The vacancy rate for grade-A buildings in the city’s major business districts fell for a second quarter to 8.8 percent as of December from a record 10.3 percent in the three months to June, according to broker CBRE Group Inc.

“We are now seeing some very early signs of a return in confidence to the market,” said Neil Hitchen, regional director at Jones Lang LaSalle in Tokyo. Tenants “are renegotiating terms early to try to take advantage of the tenant-favorable market conditions and get in good shape for the next few years,” he said.

The rebound may signal the end of a 21-year slide that cut rents for all categories of offices in the city’s five central wards by 63 percent, according to Miki Shoji Co., a Tokyo-based broker.Japan has been struggling with deflation that has caused companies and households to put off spending since the late 1990s, after asset prices collapsed.

Landlords are now seeking rent increases and investors are considering acquisitions as Prime Minister Shinzo Abe pursues fiscal and monetary stimulus to pull Japan out of its third recessionin five years. Contracted rents for prime office space in the central wards rose 13 percent to 23,969 yen ($257) per tsubo in the fourth quarter from the previous three months, according to Sanko Estate Co., a Tokyo-based broker. Prime refers to the most stable high-income producing properties.

Rising Expectations….”

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Will Student Debt Keep the Housing Recovery Tame?

“Pity the college graduate, burdened with shocking levels of student-loan debt and looking for a job in the worst employment market in two decades.

But save a little pity for the rest of us.

The staggering amount of outstanding student debt — nearly $1 trillion owed – is beginning to impede the U.S. economy as a whole, a new report from the New York Federal Reserve suggests, chiefly by robbing the housing market of its richest crop of new buyers: young college graduates.

The statistics in the report are dismaying in themselves. With the number of borrowers approaching 40 million nationally, including more than 40 percent of 25-year-olds, the average balance on their loans has risen to $25,000. About 6.7 million of all student borrowers, or 17 percent, are delinquent on their payments three months or more.

“Delinquent student loan borrowers have a very difficult time accessing credit and the share of those borrowers is greater today than in the past,” said Donghoon Lee, a senior economist for the New York Fed and one of the authors of the report.

For the average homeowner, the worst news is that these overleveraged and defaulting young borrowers are no longer qualify for other kinds of loans — particularly home loans. In 2005, nearly nine percent of 25- to 30-year-olds with student debt were granted a mortgage. By late last year, that percentage, as an annual rate, was down to just above four percent.

The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined 10 percentage points, from above 16 percent in 2005 to a little more than 6 percent today.

“These are the people you’d expect to buy big houses,” said student loan expert Heather Jarvis. “They owe a lot because they have a lot of education. They have been through professional and graduate schools, but their payments are so significant, they have trouble getting a mortgage. They have mortgage-sized loans already.”

For years, economists and student advocates warned that the greater debt load would have an adverse impact on graduates’ borrowing power. Now the statistical evidence is mounting. Last month, a Pew Research Center survey found that the share of millennials who own their homes had fallen from 40 percent to 34 percent during the recession, with a similar decline in residential debt….”

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Watch the 60 Minutes Hit Piece on China’s Property Market

“We have written about China’s ghost towns — neighborhoods with massive new buildings not inhabited by any people.  Many see this as the clear evidence of overbuilding and a housing bubble.

Some economists, like Yale’s Stephen Roach has said, however, that China’s modernization is “the greatest urbanization story the world has ever seen,” and that these ghost cities will soon become “thriving metropolitan areas.”

But analysts say most Chinese people can’t afford the types of homes being built in the ghost cities.

China has been trying to get a grip on its property market for some times now and some say officials are in control and have been deflating the housing bubble.

However, the risks of the housing bubble evolving into a financial crisis appear to be high…..”


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Home Prices Rise for the First Time in Nine Months as Buyers Come Back to London and Southern England

“U.K. house prices rose for the first time in nine months in February as demand for homes increased in London and southern England, Hometrack Ltd. said.

Prices in England and Wales advanced 0.1 percent from the previous month, the property researcher said in a statement today. The number of new buyers registering with agents rose 14.3 percent on the month, outpacing an 8.7 percent increase in supply. From a year earlier, values were down 0.1 percent.

“The impetus for improved market conditions and higher prices has been driven by London and the home counties of southern England, where there is the greatest mismatch between supply and demand,” said Richard Donnell, director of research at Hometrack. “We expect demand for housing to continue to grow as we move into spring.”

While higher inflation has squeezed households….”

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Does an Investor Driven Housing Rally Pose a Threat?

“(MoneyWatch) Home prices are up, the number of properties on the market is down and buyers are moving fast to take advantage of deflated prices. So is the housing market finally returning to normal?

Not exactly. Many of those real estate buyers aren’t your everyday bargain-hunters. They’re Wall Street and international investors. While the fast money is boosting the housing market, it also poses risks in a key sector of the economy that is just getting back on its feet.


Data show that investment trusts, private equity firms and other institutional investors are purchasing thousands of single-family homes. The idea is to fix them up, rent them out and, when prices rise, sell them.


Although it’s not the first time that financial firms have scooped up blocks of homes in anticipation of a rebound, it’s hard to predict how this will affect the neighborhoods where firms are doing most of the buying. In the past, most single-family homes were built to order, purchased by the family that would live in them for years.

So what happens to the housing market when investors are doing the buying rather than owner occupants? And what happens to the neighborhoods in which this is occurring?



It’s tough to pinpoint exactly how many homes are being purchased by investors rather than individual buyers. One of the best ways to do that is to look at absentee purchases, where the property tax bill is sent to a different address. These typically indicate an investor-purchased property, but there could be second-home buyers in the mix, particularly in popular vacation-home markets….”

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What Could Go Wrong with the Housing Recovery in 2013? Plenty

“Federal subsidies and Federal Reserve policies enabled a vast expansion of debt that masked the stagnation of income. Now that the housing bubble has burst, this substitution of housing-equity debt for income has ground to a halt.

What could go wrong with the housing recovery in 2013?


To answer this question, we need to understand that housing is the key component in household wealth. As a result, Central Planning policies are aimed at creating a resurgent “wealth effect”: When people perceive their wealth as rising, they tend to borrow and spend more freely. This is a major goal of U.S. Central Planning.

Another key goal of Central Planning is to strengthen the balance sheets of banks and households. The broadest way to accomplish this is to boost the value of housing. This then adds collateral to banks holding mortgages and increases the equity of homeowners.

Some analysts have noted that housing construction and renovation has declined to a modest percentage of the gross domestic product (GDP). This perspective understates the importance of the family house as the largest asset for most households and housing’s critical role as collateral in the banking system.

The family home remains the core asset for all but the poorest and wealthiest Americans. Roughly two thirds of all households “own” a home, and primary residences comprised roughly 65% of household assets of the middle 60% of households – those between the bottom 20% and the top 20%, as measured by income. (The U.S. Census Bureau typically divides all households into five quintiles; i.e., 20% each.)

Since housing is the largest component of most households’ net worth, it is also the primary basis of their assessment of rising (or falling) wealth (i.e., the “wealth effect.”) No wonder Central Planners are so anxious to reflate housing prices. With real incomes stagnant and stock ownership concentrated in the top 10%, there is no other lever for a broad-based wealth effect other than housing.

Extreme Measures

Given the preponderance of housing in bank assets, household wealth, and the perception of wealth, the key policies of Central Planning largely revolve around housing: keeping interest rates (and thus mortgage rates) low, flooding the banking sector with liquidity to ease lending, guaranteeing low-down-payment mortgages via FHA, and numerous other subsidies of homeownership.

At least three aspects of this broad-based support are historically unprecedented:

1) The purchase of $1.9 trillion of mortgage-backed securities (MBS) by the Federal Reserve.

The Fed purchased $1.1 trillion in mortgages in 2009-10 and it recently launched an open-ended program of buying $40+ billion in mortgages every month. Recent analysis by Ramsey Su found that Fed purchases have substantially exceeded the announced target sums; the Fed is on track to buy another $800 billion within the next year or so. This extraordinary program is, in effect, buying 100% of all newly-issued mortgages and a majority of refinancing mortgages.

Never before has the nation’s central bank directly bought 15%+ of all outstanding mortgages this raises the question: Why has the Fed intervened so aggressively in the mortgage market? There is no other plausible reason other than to take impaired mortgages off the books of insolvent lenders, freeing them to repair their balance sheets.

Regardless of the policy’s goal, the Fed now essentially controls a tremendous percentage of the mortgage market.

2) …..”

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Home Sales are Still Largely Driven by Foreclosures

“The housing market appears to be surging ahead suddenly on all cylinders, but that does not mean it is free of the remnants of its recent downfall.

The number of distressed home sales, either bank-owned or short sales, may be shrinking, but it is still making up a significant share of the overall housing market.

Foreclosure-related sales made up 21 percent of all U.S. sales in 2012 and short sales, when the home is sold for less than the value of the mortgage, made up 22 percent, according to a new report from RealtyTrac. Add it up and 43 percent of all 2012 sales were of distressed properties.

Banks are making more of an effort to do short sales instead of taking a home to foreclosure, and new federal guidelines are streamlining the process. That led to a 15 percent drop in sales of bank-owned homes and a 6 percent increase in short sales. This has helped home prices because short sales on average sell for a higher price than do bank-owned homes, because they are usually neither abandoned nor vandalized.

“Although foreclosure-related sales represent a shrinking share of total sales, primarily because of fewer bank-owned purchases, distressed sales are still a disproportionately high portion of the overall housing market,” said Daren Blomquist, vice president of RealtyTrac. “And while distressed properties — whether bank-owned, pre-foreclosure or short sales not in foreclosure — are still selling at a significant discount compared to non-distressed properties, average distressed property prices are increasing in many markets thanks to strong demand and limited inventory.” …”

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Shiller: The Last Time Home Prices Rose as We Have Seen Recently, The Soon Fell

“The recent string of housing data shows that housing supply is tight, new home sales are surging, and pending home sales are up.  And this, analysts say, bodes well for home prices.

In an interview with The Wall Street Journal, however, Robert Shiller says he is more “worried” than most about the rise in home prices, because he isn’t certain that the recovery in prices will be sustained.

Here is an excerpt from the interview:

WSJ: Did we finally hit a floor in home prices last year?

Mr. Shiller: The trend in home prices seems to be up now. It has been going up. That’s upward momentum, which by my general rule of forecasting has been good for the future. I’ve been tentative about that. It may well be the turning point.

But I’m not sure about that. I’m more worried than most people that it could be a short-lived turnaround. It could be like the 2009-10 upturn where we saw home prices rising right after President Obama took office and right after the home-buyer tax credit was instituted. In that upturn there were some cities that did quite spectacularly. And then that fizzled. I’m not too sure that this one will extrapolate either.

WSJ: Why are you more worried than most people?….”

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Mortgage Applications Fall Despite Low Rates

“Applications for U.S. home mortgages sagged for a third week in a row last week, even as mortgage rates eased slightly, an industry group survey showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell 3.8 percent in the week ended Feb. 22.

The MBA’s seasonally adjusted index of refinancing applications slipped 3.3 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, dropped 5.2 percent…”

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U.S. Banks Open Liquidity Spigot for European Commercial Property Market

“U.S. banks are looking to capitalize on a dearth of financing for Europe’s commercial property market that’s driven lending margins to five times the level prior to the 2008 crisis.

Citigroup Inc. (C)Morgan Stanley (MS)Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) are following insurers and distressed investors allocating capital to the region as local banks, which overextended during the last boom, are forced to contract amid new regulations. Europe faces an $82 billion shortfall between the amount of real-estate debt maturing through this year and the funding available to replace it, according to real-estate broker DTZ.

The scarcity of capital means lenders can charge as much as 3.75 percentage points over benchmarks for the safest pieces of commercial mortgage debt, about five times the spread in 2007, according to Alvarez & Marsal, an adviser on real estate transactions. Those margins will enable banks to revive the market for commercial mortgage-backed bonds, which parcel loans and slice them into securities of varying risk, after it largely shut in 2008.

“Nature abhors a vacuum,” said Robin Priest, a managing director of Alvarez & Marsal’s real-estate business in London. “The need for debt finance is much greater than the bank-market supply,” he said. “This is therefore positive for the CMBS market.”

Europe’s recession caused the amount of new lending for commercial property in the region to drop by about 77 percent from 2007 through 2011, according to estimates from Michael Haddock, a London-based research director at CBRE Group Inc.

Portfolio Sale…”

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The Doubling of Property Taxes Immediately Slows Hong Kong Real Estate Market

“Residential property sales in Hong Kong fell after the government doubled a sales tax, saying bubble risks are spreading in the world’s most expensive place to buy an apartment.

Secondary sales for the 15 most popular housing estates fell 15 percent at the weekend from the previous weekend, according to Buggle Lau, chief analyst at Midland Holdings Ltd., the city’s biggest publicly traded realtor. The stamp duty on all properties above HK$2 million ($258,000) was raised to as much as 8.5 percent of the purchase price.

Chief Executive Leung Chun-ying’s latest attempt to cool the city’s real estate market sent shares of developers and realtors lower amid concerns that transactions will dry up and prices will decline. Since taking office in July, Leung has added extra property taxes, favored local permanent residents, tightened mortgages and increased supply after home prices doubled in the past four years on near-record low mortgage rates, an influx of mainland Chinese buyers and a lack of new units.

“The government intends to turn away yield seeking investors from all property markets,” JPMorgan & Chase Co. analysts, led by Lucia Kwong, wrote in a report today. “Developers may see 5 to 10 percent share price downside.”

The Hang Seng Property Index, which tracks the shares of the city’s nine biggest developers, fell for a seventh consecutive session, the longest losing streak since the seven sessions to May 14. It fell 0.3 percent at the close to the lowest in almost two months, after declining as much as 1.7 percent. The index has outperformed the Hang Seng Index (HSP) in the past 12 months, gaining 14 percent compared to the benchmark’s 7.6 percent.

Retail Transactions…”

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Housing Vacancy Rates Fall Back to 2006 Levels

“The U.S. housing market is looking up these days as fewer homes and apartments sit vacant. In fact, vacancy rates for residential housing have dropped to their lowest levels since before 2006, when the housing boom was still going strong, according to the U.S. Census Bureau.

During the last quarter of 2012, the vacancy rate for homes was 1.9%, and 8.7% for the rental housing market.

To compare, the vacancy rate for homes reached a high of 2.9% in 2008, while the rate for rentals peaked at 11.1% in 2009. On an annual basis, the rental vacancy rate is the lowest since 2001….”

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Home Prices in China Continue to Melt Up

China’s new home prices rose in most cities the government tracks for a third month, adding pressure on leaders to intensify policy-tightening efforts to prevent asset bubbles and inflation as the economy rebounds.

Prices climbed in January from December in 53 of the 70 cities, compared with the previous month’s 54, which was the most since April 2011, according to data today from the National Bureau of Statistics. Ten cities showed declining prices and seven were unchanged….”

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Hong Kong Doubles Sales Tax on Property Sales to Try and Curb Prices

Hong Kong doubled the sales tax on property costing more than HK$2 million ($258,000) and targeted commercial real estate for the first time as bubble risks spread from apartments to parking spaces, shops and hotels.

The stamp duty will increase to 8.5 percent of the purchase price for all properties, Hong Kong Financial Secretary John Tsang said at a briefing today. The Hong Kong Monetary Authority also tightened mortgage terms for commercial properties and parking spaces.

The government widened its property curbs to cover commercial transactions after earlier this week hundreds of people turned up to buy hotel rooms being sold by Li Ka-shing’sCheung Kong (Holdings) Ltd. (1) in the city, prompting a warning from the government. Home prices have doubled in the past four years on near-record low mortgage rates, an influx of mainland Chinese buyers and a lack of new supply….”

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Will Sequestration Kill the Housing Recovery?

“Massive government budget cuts set to go into effect March 1 would be, “deeply destructive” to all aspects of the housing market, US Secretary of Housing and Urban Development Shaun Donovan told a Senate panel last week. From programs for the homeless to reconstruction after Superstorm Sandy, the sequester would, “harm numerous families, individuals, and communities across the nation that rely on HUD programs.”

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One of those programs that has been instrumental in the housing recovery is the government’s insurer of home mortgages, the Federal Housing Administration (FHA). Should the FHA lose staff, which it likely would, it would lose much of its capacity to process new home loans and mortgage refinances as well as sell foreclosed properties that it owns. Twenty-three percent of all mortgage originations in 2012 were FHA-backed, according to a report released Wednesday by Ellie Mae.

The FHA, however, is just the beginning. Sequestration would affect all loans in process, just as housing enters the crucial spring market….”

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