Friday, June 13, 2014

Housing Bubble Fears Brew Overseas

The International Monetary Fund says that several global housing markets are overheating, even in the U.S. – which is still digging itself out of a housing bubble that popped in 2008. Most of the warnings, however, have been issued for overseas.
Economists are warning countries like China, Sweden, the United Kingdom (particularly London), and Canada that after years of rising housing prices, their housing markets may be overheating. In Sweden, housing prices have tripled over the past 10 years. In Canada, prices have been rising for years and some economists have speculated a housing crash is inevitable later this year.
But China has many economists particularly worried that its property market is overheating,  ignited by the widespread availability of cheap credit. Pan Shiyi, CEO of Soho China, even compared the market to the sinking of the Titanic: “After hitting the iceberg, the risks will not be in the real estate sector,” Shiyi notes. “The bigger risk will be the financial sector.”
IMF policy makers are paying closer attention to the global housing market. Over the past year, 33 out of 52 countries in the IMF’s Global House Price Index have posted rises in home prices, even when the economies in the countries have been slowing down.
In the U.S., home prices have risen by about 5 percent on a yearly basis ending 2013. However, the economy has grown by about half that amount. Markets growing by the largest amounts on an annualized basis – more than 9 percent – were the Philippines, Hong Kong, and China, IMF notes. Economists say that home prices, rents, and incomes should move in tandem with the economy. When they get out of alignment, a housing bubble can form.

Tuesday, June 3, 2014

Home Owners Doing Record Number of Cash Deals

A record number of home owners are using the increased equity in their current homes to buy their next homes in cash and avoid the mortgage process altogether, Bloomberg reports.
About 29 percent of non-investment buyers used cash to fund their housing transactions in the first quarter of this year — the highest level on record, according to data compiled by Bloomberg.
Baby boomers make up a large bulk of these all-cash deals, says Lawrence Yun, chief economist for the National Association of REALTORS®. 
"Cash purchases are on the rise because older home owners who have decades of home-equity accumulation don't want the hassle of a mortgage," Yun says. "With the economy improving and the stock market at record highs, boomers are the ones who are driving the market."
Meanwhile, the share of investors — who usually use cash — is dwindling, dropping in the first quarter to the lowest level since 2010. 
"The whole investor class, the ones doing most of the cash purchasing until now, is stepping back," Yun says. "Baby boomers are taking their place."
Baby boomers have more equity than previous generations because they may have owned a home during a 30-year "housing bull market." In April, the median price of an existing-home was $201,700 compared to $67,800 in 1982, when many boomers had purchased their first properties, Bloomberg reports. 
What's more, about 16.3 million Americans older than 60 owned their homes outright in 2012, up from 12.1 million in 2009, according to Census data. 
Baby boomers are expected to remain a strong presence in the housing market much longer than previous generations, too. 
They "will be buying and selling well into their 80s because they are going to be active and healthier for a lot longer than their parents," says John McIlwain, a senior fellow at the Urban Land Institute in Washington. "They are a rebellious generation, and they're not going to go along with the idea of traditional retirement."
Source: “Cash Property Deals Reach Record with U.S. Boomers Retiring,” Bloomberg Businessweek (June 2, 2014)