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An Illusion Of False Prosperity

A report from 7 News Melbourne in Australia. “Gumtree is typically used as an avenue to sell unwanted household goods for extra cash. But the downturn in the property market is hitting some Melbourne families so hard that hundreds are trying to sell their land through the online marketplace.”

“7NEWS can reveal that one in three property owners can’t afford to pay off their housing blocks – to which they financially committed during the property boom. And 1000 blocks are up for sale on Gumtree as families try to avoid financial ruin.”

“In 2017, Reet Kaur and her husband Sukhpreet bought a housing estate block for $400,000, paying a 10 per cent deposit of $40,000. But at settlement time the block value had plummeted, with the bank valuing it at $350,000. Taking into account a range of related factors – including the bank requiring a greater deposit – the Kaurs said they stood to lose $100,000.”

“‘To be honest, I’m speechless. I don’t even have words to express it,’ Reet Kaur, who is expecting her first child, told 7NEWS. ‘I was shaking and was telling them that I’d lost everything.'”

“Real Estate Agent Himanshu Gupta said there is currently a 27 per cent default rate in Melbourne.”

From Thompson Reuters on China. “Song Jingyi, a paralegal from a family of modest means in the central Chinese region of Henan, had long dreamed of buying a home of her own in Zhengzhou, the sprawling provincial capital of 10 million where she attended college.”

“Last November, Song was presented with a tempting opportunity: a deal offered by a Chinese developer to circumvent the usual 30% downpayment on an apartment by borrowing the up-front payment itself. The offer was a risky one for a developer – and a warning sign that the market in Zhengzhou was hitting a wall.”

“Despite the warning signs, Song saw the mortgage offer as a golden opportunity to finally get into the Zhengzhou market. However, Song soon noticed that prices were dropping at some developments – including one where a friend had bought a home.”

“She had longed for a taste of the middle class lifestyle her friends were flaunting with their apartments packed with consumer goods. But she also didn’t want to buy into a bubble that looked set to pop. She decided to pull out, ultimately filing a lawsuit to get her deposit back.”

“‘I felt that everyone around me had a house and I felt so much pressure from my peers,’ Song said. ‘In many ways, that was an illusion of false prosperity.'”

“The effects of the slowdown in Zhengzhou have been felt by people like Zhang Chenxuan, who has run an interior design business in the city for seven years. Since last year, his income has shrunk by 20-30% as orders from new home buyers fell, he said.”

“‘Clients nowadays only want something practical and simple that saves money instead of going for the luxurious,’ Zhang said. ‘Eighty percent of my customers now complain that they are very poor, that they don’t have the money for proper furnishings.'”

This Post Has 65 Comments
  1. ‘Reet Kaur, who is expecting her first child, told 7NEWS’

    Gratuitous pathos, check!

  2. ‘She had longed for a taste of the middle class lifestyle her friends were flaunting with their apartments packed with consumer goods’

    So she was greedy and wanted something for nothing. That’s what this boils down to. Buying and selling shacks to each other produces nothing but debt.

    1. True enough, but that summary discounts the more complex psychology of it. Humans are social beings and vulnerable to fear that they are missing out, or being stupid to be suspicious. We can get high and mighty about what we think “proper” capitalism should look like, but our systems as they stand surely glorifies and supports with its institutions and policies the allegedly “smart” use of debt and the rent-seeking and speculation that housing bubbles represent. I find it reprehensible that we accept speculation in something as deeply necessary to our sense of safety and community as shelter but there seems to be no stomach for making it end yet.

    2. Snow day in Colorado today. It looks like Winter outside. May 21st; less than a week from Memorial Day, which is the unofficial start of Summer. Global warming, or something. 🙂

      Central banks/Statists, as enabling institutions are the finance arm of the Progressives/Socialists/Communists. Keynes was a Progressive. Always ends in tears. Debt is not wealth. No free lunch. People don’t seem to learn from history, or from their previous mistakes.

      “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.” – Winston Churchill

      “The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” – Winston Churchill

      Dire Straits – Money For Nothing

      “We gotta install ovens
      Custom kitchen deliveries
      We gotta move these refrigerators
      We gotta move these color TV’s”

      “Now that ain’t workin’ that’s the way you do it
      You play the guitar on the MTV
      That ain’t workin’ that’s the way you do it
      Money for nothin’ get your chicks for free
      Money for nothin’ get chicks for free”

      1. It makes absolutely no sense to me that the current actions of Central Banks are serving Progressives and Socialists. Quotes about evils provide no evidence that this is true, but do serve those who benefit from a debt-based system. All actual evidence points to the beneficiaries being an elite whose MO includes creating demons to justify their continued micro-managing control via our bought-and-paid-for politicians, and “both sides” do this liberally. Harder to take, in my opinion, from the ‘side’ that claims to be for ‘free’ markets when all they *actually* do is manipulate them to their benefit.

        1. “…Rep. Maxine Waters, D-Calif., now the chair of the House Financial Services Committee…”

          Nothing to see here folks…keep moving.

    1. I took an early morning Lyft ride today. Got into a discussion with the driver about the bilions of dollars spent on Lyft and Über IPOs with the goal of replacing human drivers with bots. His comment: “That’s so far off into the future that I’m not going to worry about it.”

      1. He’s probably right. The more I look into it, the more I think true level 5 autonomous vehicles won’t happen within my lifetime.

        1. I agree, but the “investment” (a lot of VC plus spending by the big guys as they cut their other divisions drastically) is assuming some return relatively soon, isn’t it? I sometimes wonder in my neck of woods –Michigan–what things will look like for the local economies as the stiff competition and betting on this or the other player in the field plays itself out. There will need to be winners and losers, and it feels like there is a temporary boom and I wonder what the bust fallout will look like here, vis a vis housing of course 😉

        2. I agree. Ironically, the fastest way to speed it up would be to ban human drivers. It is very difficult for computers to anticipate the stupid actions of humans but most of us have learned to drive defensively. However we tend not to do things like slam on the brakes when another car merges into the reasonable space we left in between vehicles. Very difficult to teach a computer stuff like that.

          1. This is definitely true. The only slightly jarring aspect of using autopilot when I am in the city is when someone makes a left hand turn in front of me. The car will slow rather abruptly to ensure no collision, whereas a human driver would know that the driver making the left hand turn across a lane of traffic will be out of the way without the need to adjust speed. But again, there is the possibility that the left hand turning vehicle will not leave the path, so the self-driving algorithm must plan for every eventuality.

  3. ‘In many ways, that was an illusion of false prosperity.’

    Debt-funded prosperity is a very common illusion in the U.S. as well.

    1. Cut from article

      “..We see that the inventory totals have steadily improved, and will provide more choices for those looking to buy a home,” Yun said…”

      The king of wordsmithing is has flowered up his language just in time for the spring buy season.

      Hey Laurence, what ever happen to our shortage?

  4. The last housing crash wasn’t that long ago. How could people get set up like this again so soon?

      1. Ben., I have been going back and updating myself on your prior posts. Garbage loans again.

        1. May 25, 2018

          “In his corner of American finance, where hard selling meets hard luck, Angelo Christian is a star. Each time Christian sells a home loan, the company he works for, American Financial Network Inc., takes as much as 5 percent. Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. ‘If he can help me, he can help anyone,’ Taylor says. ‘My credit history was just horrible.’”

          “Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk. Many borrowers ‘are living paycheck to paycheck and, if they lose their jobs, they go into default immediately,’ says John Burns, a housing consultant.”

          “One reason more borrowers may be stretching: Real estate prices are soaring again.”

          http://thehousingbubbleblog.com/?p=10443

    1. “Two things are infinite: the universe and human stupidity; and I’m not sure about the universe.”

      —Albert Einstein

  5. <em.“‘I felt that everyone around me had a house and I felt so much pressure from my peers,’ Song said. ‘In many ways, that was an illusion of false prosperity.'”

    You dodged a bullet, Song. Soon all those “peers” will be standing in a soup line.

    1. Your innocence is kind of cute. In reality they will be living mortgage-free for years, sometimes decades, as the banks never foreclose.

    1. New and Pending Home Sales are leading housing indicators. Data out on 5/23, 5/30, respectively. Looking at the YoY pct. change NHS data shows the downward trend. Link here:

      https://www.yardeni.com/pub/homeprice.pdf
      US Economic Indicators:Home Prices
      May 21, 2019Dr. Edward Yardeni
      Figure 3.
      NEW HOME SINGLE-FAMILY PRICES
      (yearly percent change in 12-month moving average)
      Data through March, ’19

      End of Spring ’19 selling season is month of June. June data available in late July. The trend should be clear by then, if not now already.

      Humpty Dumpty.

  6. I’m still waiting for this supposed “McMansion Crash” to arrive here in Sin City.

    Please allow me to corroborate my assertion:

    1. Firstly, the median income for all Vegas residents is approximately $57k, according to this site: https://www.deptofnumbers.com/income/nevada/las-vegas/

    2. Next, I multiplied that $57k by 2.5, which in my opinion is the MOST anyone should spend on a McShack, given the taxes, insurance maintenance and upkeep required.

    3. This yields an “affordable” price of approximately $145,000 (rounding up to be as fair as possible).

    4. Then I headed over to Zillow.com, here: https://www.zillow.com and did a preliminary search on ALL McHovels for sale in Clark County, NV, at any price. The result was OVER EIGHT-THOUSAND McShacks.

    5. However, when I then plugged in a price range of between $50k and $150k (stretching the upper bound even more than the previous calculation yielded), the result was a measly THIRTY-NINE McHomes!!! You can see for yourself the types of ratholes that are available at that price.

    So, would someone please explain to a dense Sin City Saint where this supposed “McCollapse” is? Because I’m surely not seeing it here.

    1. It doesn’t happen overnight. Without a lynchpin event like 2008, this is going to be a slow, long drop to the bottom. Plenty of suckers will catch the falling knife.

      1. You would think homeless people camping everywhere would be a red flag that something is wrong. Ten years ago people use to complain that foreclosures were making neighborhoods look ugly. Now we have humans and needles and trash.

          1. This fits my belief that RVs are the ultimate version of affordable housing. They are mobile, so they double as transportation, and there are not pesky zoning regs or impact fees that deter their production. The future of housing is living in RVs for some subset of the population, and not just homeless. In my city there are several new RV parks that are being built.

          2. Eventually they will be the Roma of the western hemisphere. While Fed and Friends own everything but their RV and what’s inside it. Keep moving or else.

          3. Eventually they will be the Roma of the western hemisphere. While Fed and Friends own everything but their RV and what’s inside it. Keep moving or else.

            I can picture it now! It will be some version of Mad Max dystopia!

          4. “Eventually they will be the Roma of the western hemisphere. While Fed and Friends own everything but their RV and what’s inside it. Keep moving or else.”

            And inside those RVs you will find many guns, ammo and a lot of anger.

    2. Patience young grasshoppers. Even in the first housing bubble, it peaked in 2006 and didn’t bottom out in 2012. This is was record low interest rate, QE1-3, Operation Twist, 4 trillions printed, etc.

      Housing market is not the stock market. A crash will look like a slow-motion train wreck. Maybe this time people are more wiser and the pace will be quicker but never underestimate the stupidity of your fellow human beings.

      You think that people learned the lessons but somehow people got dumber. Central banks around the world BLEW a second GLOBAL housing bubbles and now they are BLOWING UP worldwide. LV is about 6 months behind the west coast. The east coast is about 1 year behind the west coast. The west coast is 1 year behind AUS and CANADA.

      1. I’m still waiting for the damned MidWest to crash! It feels like the equity locust effect is never-ending and makes pricing here silly beyond any sense, in the pockets that get good press and have heavy REIC marketing infrastructure like totally-overrated Ann Arbor, sigh….

        1. “I’m still waiting for the damned MidWe$t to cra$h!

          $imply follow the “good fortune$” of the NON.bank$ …

        2. I think the mid-west will be the last place to crash because relative to coastal markets, they are still considerably lower. So as long as the equity locusts are moving to fly-over, there will be overpaying for midwest property relative to incomes. Once things really get going in the coastal markets it will impede the ability for that funny money to keep migrating inland. Utah is the fastest growing US state and has been for quite some time. Every time a census count comes up we take another congressional seat from some shrinking state.

    1. Is this a wake? Diane looks like someone killed her first born. Cheer up girl!

      “First, we are seeing historically low mortgage rates combined with a pent-up demand to buy, so buyers will look to take advantage of these conditions,” said NAR’s Lawrence Yun. “Also, job creation is improving, causing wage growth to align with home price growth, which helps affordability and will help spur more home sales.”

  7. Tesla in ‘Code Red Situation’ as Sell-Off Exceeds 20%
    BloombergQuint-10 hours ago
    (Bloomberg) — Tesla Inc.’s stock rout following this month’s $2.4 billion capital raise intensified after a once-bullish analyst called the range of issues facing the ..

    1. Apple bid to buy Tesla in 2013 for $240 a share, analyst says
      Kif Leswing
      5/21/2019

      “Craig Irwin of Roth Capital Partners told CNBC on Tuesday that Apple bid a higher price for Tesla in 2013 than where the stock is currently trading.”

      1. Tesla’s stock price and market cap isn’t justified by its current performance. But if it gets low enough, I see it as a take-over target by Apple since they have largely scrapped “project Titan” from what I can tell. Apple knows that the next form of entertainment will be the vehicle.

  8. ” … enabling institution$ are the finance arm of the Progressive$/Socialists/Communists.”

    + repubican Fi$cal CON$ervative$

    20 Trillion$ taxpayer$ earnings for $mart “indemnified” bidne$$ boy$ bailout$ =

    Do knot go to jail, plea$e collect $200!

  9. A reader sent this in by email:

    623 Walden Drive
    BEVERLY HILLS, CA 90210

    offered at
    $11,995,000

    http://www.623walden.com/

    From the email:

    Price improvement!
    Open May 21st | Open 11 AM – 1 PM
    623 N Walden Drive | Beverly Hills
    Proudly Offered at $10,995,000

    Just a few more hours HBBers.

    1. Let’s spend a few moments and give me time to wrap my head around this. You spend $11mm and you don’t get a view of anything except your neighbors fence? Am I missing something or just unusually caustic this morning?

      1. Yeah, anywhere else in Cali it would go for 1/5 or less of the ask given it has no view. Californians are a special breed of dumb though, but even so if it doesn’t go in the next year I could see it selling for half the ask and not be surprised.

      2. “You spend $11mm and you don’t get a view of anything except your neighbors fence?”

        Did you see the garage?

        You can do this!

  10. 27% DQ Rate???
    Makes the “U.S. Subprime” Crisis look like a bunch of rookies who had not learned how to use leverage to get rich.

  11. The thing I hate about speculation that’s based on faulty lending is that everybody ends up suffering in some way to, even if you didn’t buy into the false markets yourself.

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