So What Changed In 2007-08?

A weekend topic starting with My Suncoast in Florida. “A Naples developer had big plans in 2022 to bring more than 850 homes to a rural area of DeSoto County, betting the region’s unprecedented housing demand would continue stretching further east into Arcadia. With no connections to municipal sewers, the homebuilder wanted the authority to tax future residents for the cost of a new utility plant needed to bring basic plumbing to their homes. So the company petitioned local officials to establish a new special government that it would control. Three years later, there are still no sewers, and the 412 acres of vacant land is back on the market for $28.6 million — a billboard on the property advertising houses that never came.”

“The real estate developers behind these independent special districts use their government status to float multimillion-dollar, tax-free bonds to finance construction and dictate how homeowners pay it back — all with no reins on the spending, a Suncoast Searchlight investigation has found. Unlike traditional bank loans, municipal bonds are tax-exempt and carry lower costs. Developers use them to finance site improvements like interior roads, street lights, sidewalks, sewers and amenities, which are needed before homebuilding can begin. The money also funds ongoing community maintenance and operations. With a majority stake on the governing boards, builders then pass those bond repayments on to home buyers through tax assessments at rates the residents can’t control.”

“Single-family homeowners in Waterlefe paid $3,849 last year in district assessments. Those fees were more than double what most homeowners paid in taxes to Manatee County’s general operating budget, which funds services like libraries, emergency medical services and law enforcement. ‘Unfortunately, Waterlefe got caught up in all this mess in 2009 when the housing market collapsed, and people were stopping just short of jumping out of buildings,’ said Matthew Huber, regional district manager for Rizzetta and Co., which manages several Florida CDDs, including Waterlefe. ‘Had they not gone through that, the assessments would probably not be what they are.'”

“Other builders point to that very reason for why they avoid municipal bonds. Hugh Culverhouse Jr. is among the region’s most well-known developers with projects like the Palmer Ranch master-planned community in Sarasota County. He vowed to never use special districts for his new developments, calling them ‘poison.’ Culverhouse said that’s because the model relies too much on the gamble that all the new homes will sell quickly to risk-tolerant buyers. He doesn’t want that kind of debt saddled on his land and said investors should be wary because, if the CDD goes down, the bond is ‘worthless.’ ‘The bottom line on CDDs, if you look at them, they’re a powderkeg for the homeowner, who is paying for the infrastructure,’ Culverhouse said. ‘The developer wants to over-leverage his property and put none of his own money into it … The joke of it is, the person who is buying is paying what I should have paid (as the developer).'”

NBC Los Angeles in California. “Undocumented immigrants will soon no longer be eligible to apply for a popular federal home loan program as authorities are requiring applicants to have permanent residency in the U.S. The Federal Housing Administration (FHA) loans are government-insured mortgages that have paved a way for lower-income people to buy a home, including those with the Deferred Action for Childhood Arrivals status. But as the U.S. Department of Housing and Urban Development will require permanent residency from applicants starting on March 25, undocumented people will have one fewer option. The Department of Housing and Urban Development added that those with pending asylum and refugee status will also not be able to apply.”

“‘It’s the go-to program for anyone looking to buy a first home,’ said real estate agent Jesus Laurean, explaining that FHA loans are often the best and only option for first-time buyers. ‘It definitely does impact people that are barely able to qualify for a home with a 3.5% FHA payment.’ The loans, which come with lower down payment requirements and sometimes lower interest rates, have been popular among undocumented immigrants, including DACA recipients who have called the U.S. home since they were brought into the U.S. by their parents without documentation. ‘Anyone who does not hold a permanent residency is going to be the primary person affected by the new policy,’ said Laurean.”

“Nancy Calco is one of the people whose dream of buying a home is seeing another roadblock due to the pending rules. ‘Our dream has come to a standstill,’ Calco said. Although people like Calco could still seek conventional loan programs, that would require a higher credit score (at least 620) and a 20% down payment to avoid having to purchase private mortgage insurance. When the median price of home listed in LA County stood at $999,000 in February, a 20% down payment can be a tough swing.”

From Calmatters. “Affording a home is no easy feat in California, where houses cost twice the national average. And for a lucky few, a state program aiming to help first-time homebuyers has reduced this American rite to a matter of winning a lottery. About 18,000 people last year applied for California Dream for All, a state-funded loan that pays all or most of a down payment on a home. Borrowers pay it back when they sell.”

“Only about 2,000 families won the loans last year, averaging $117,000 each, and about 2,100 got them the year before. The 2-year-old program is costing taxpayers more than $500 million. The very existence of a down payment assistance program is a symbol of California’s failure to preserve economic mobility for younger generations. It begs the question: Is this a worthwhile way to help more Californians buy a home?”

“If state leaders and even real estate interests won’t prioritize the down payment program, it’s fair to question whether more tax dollars should be used. But once you consider the consequences, the state must remain in the business of encouraging homeownership, especially if it helps retain California’s cost-burdened middle class. Homeownership is still one of the best vehicles for narrowing the wealth gap between demographic groups, while stabilizing neighborhoods. And it could temper the growing divide between the very rich and the rest of us, while stemming the flood of people leaving California for more affordable housing elsewhere, which is endangering the state’s long-term outlook.”

“Today only 15% of California families can afford a median-priced home, which was $884,000 in March. Only 24% can manage a median-priced condo or townhome at $680,000.”

The Telegraph. “Never one to miss a reason to crow, Gavin Newsom, the governor of California, was out in front of the media at the weekend, bragging about how his state now boasts the world’s fourth largest GDP, surpassing Japan. Unfortunately, few are likely to believe him. Newsom must realise that the notion that California is a model for the rest of the United States – the rationale for the Newsom-led ‘resistance’ against Donald Trump – is no longer widely accepted. But beyond GDP, the illusion of Californian success is also a product of high asset values, like real estate, exacerbated by regulatory policies, with house prices typically more than twice as high as the national norm.”

“Rather than the exemplar of a new ‘progressive capitalism,’ or a model for social justice, as Newsom and his cadre assume, the beneficiaries of the state’s growth have been very much concentrated on the upper crust. It may be springtime for Apple, Google, Nvidia and Meta, but the prospects for most Californians are anything but sunny. In reality, modern California increasingly resembles a feudal country – like Qatar, Brunei or the United Arab Emirates – where fantastic wealth is largely owned by a small elite.”

“Overall, California today is one of the worst states in the nation when it comes to creating jobs that pay above average, while it is at the top of the heap in creating below average and low-paying jobs. Between 2008 and 2020, the state created five times as many low wage jobs as high wage jobs. In the past three years, the situation worsened, with 78.1 per cent of all jobs added in California from lower-than-average paying industries versus 61 per cent for the nation as a whole.”

“As tech stocks and housing in Montecito (home of Meghan and Harry) soar in value, Californians suffer the nation’s second highest rate of unemployment, lagging in job creation in comparison to its chief rivals, like Texas and Nevada. In the past year, its GDP growth has also been among the lowest in the country. Rather than the land of entrepreneurial opportunity, California increasingly presents a picture of medieval inequality. Huge wealth is concentrated within in few hands while around a quarter of the nation’s homeless population lives in the Golden State, many concentrated in disease and crime-ridden tent cities in Los Angeles or San Francisco. If this is the model of Newsomian capitalism, it’s unlikely to have many buyers in 2028.”

The Globe and Mail. “Who or what is responsible for Canada’s unaffordable housing? Frequently cited factors include restrictive zoning, rapid population growth, permit delays, high development fees, slow wage growth and monetary policy. To answer that question, it’s essential to ask: When was the tipping point that pushed Canada’s housing market into sustained unaffordability? Housing affordability is commonly measured by the ratio of average home prices to disposable income. In the chart, we compare this ratio across Canada, the United States and the United Kingdom to see when Canada began to diverge from historical affordability norms.”

“In the U.S., home prices have generally ranged between six and nine times disposable income over the past 50 years. There were peaks at nine in 1980, 2006 and again in 2022, but each was followed by a correction. Canada’s home price-to-income ratio also remained in this range until 2007. Home prices in Canada began rising steadily starting in 2001, but the true inflection point came around 2007 and 2008. Since then, the price-to-income ratio has consistently exceeded nine – reaching 10 in 2015, 12 in 2016 and climbing as high as 16 in 2022.”

“So what changed in 2007-08? The most significant shift came in monetary policy. Following the global financial crisis, the Bank of Canada, mirroring the U.S. Federal Reserve, slashed interest rates to near zero in 2009 and kept them there for years. But unlike the U.S., Canada didn’t experience a housing crash. While supply hasn’t been elastic enough to meet demand – mainly owing to restrictive zoning rules – the primary factor that shifted the supply-demand balance toward unaffordability appears to be demand driven by speculative investment.”

“Ultralow interest rates made borrowing inexpensive and encouraged investors to use mortgage leverage for large returns on relatively small down payments. This led not only to worsening affordability, but Canadians now also carry the highest levels of personal debt in the top 10 world economies. when monetary policy distorts that balance, the consequences can be long lasting. Canada’s extended period of ultralow rates may have helped avoid a financial crisis in 2008 but it also ignited a slow-burning affordability crisis that continues to unfold. So while cutting rates in 2007-08 in Canada was the right medicine, the dose and the duration for which it was prescribed were not.”

Estate Agent Today. “The empty homes tax was meant to be a deterrent. It’s turned out to be little more than background noise. Since 2013, owners of long-term vacant homes have faced sliding council tax penalties of up to 300%. But over a decade later, the number of empty homes in England has risen. It’s clear this policy hasn’t moved the needle – because it completely misunderstands the psychology and profile of those holding these homes. At the top end of the market – think luxury flats in Mayfair or investment units in Canary Wharf – the tax is simply irrelevant. For many international or ultra-high-net-worth owners, a 300% council tax bill is a rounding error. These properties aren’t left empty by mistake. They’re strategic assets, safety deposit boxes in a volatile world, and the owners don’t flinch at minor surcharges. You don’t get behaviour change when the financial sting barely registers.”

“Loopholes also let many dodge the charge altogether – simply furnishing the property and declaring it a second home is often enough. And while the upcoming second home premium aims to close that, I suspect we’ll see history repeat. Wealthy owners will find another workaround. Just look at Wales: second home premiums haven’t stopped the influx of empty holiday homes across coastal towns. We’re already seeing signs. At Ernest Brooks International, over 70% of our landlord clients are from East and Southeast Asia. Many are now choosing to leave their London flats empty rather than sign tenancy agreements that could leave them powerless to regain possession.”

From ABC News. “It’s rare to find anyone in the property sector willing to talk about falling prices, let alone labelling them a good thing. But in a devastatingly honest assessment of Australia’s housing market, Cotality’s head of research Eliza Owen does just that. In a pre-election sense check, Owen has questioned the logic of the major parties, whose housing spokespeople Clare O’Neil and Michael Sukkar have both said they’d prefer house prices to keep rising, albeit preferably by less than incomes. But, given current record levels of house prices relative to incomes in Australia, it would take decades to make homes genuinely affordable for the average income earner.”

“How much difference would a 10 per cent decline make for prospective first home buyers? ‘The median value to income ratio, which was 8 at the end of last year, would go down to 7.2, and a 20 per cent deposit on the median dwelling value in March 2025 would fall by about $16,000 (from $164,000 to $148,000),’ Owen notes.”

The Daily Telegraph in Australia. “Incomplete homes have been springing onto market as hundreds of new projects signed off by Sydney councils remain stuck in limbo due to cost blowouts for builders. The unfinished homes have come up for sale after the would-be owners pulled the plug on plans to build their dream homes, or renovate, midway through construction. Some of the homes are listed for sale needing just some finishing touches applied while others are a shell of partially laid foundations. REA Group economist Anne Flaherty said sluggish home price growth in some areas may have contributed to the slow rate of housing completions in some areas. ‘After Covid, building costs increased at a rate beyond anything we’ve seen in history,’ she said. ‘Construction cost increases had been fairly consistent stretching back to the 1960s but there was a spike in 2021 and the combination of higher build costs and lower prices in these markets mean some projects won’t be profitable anymore. We’d need a massive jump in prices for some of these projects (in their approved form) to be feasible again.'”

Business Today. “India’s property market has been on a tear since the pandemic, with prices in top-tier cities like Mumbai, Bengaluru, and Hyderabad climbing as much as 30%. Surging demand, limited new launches, and investor appetite have kept the market buoyant. But while many await a correction citing high EMIs, flat salaries and regulatory headwinds some argue that banking on a crash could be a costly mistake. A recent Reddit post captured this sentiment, triggering a wave of reactions from users, who believe that Indian real estate, especially in metros, is unlikely to lose steam anytime soon.”

“In a post that quickly gained traction, a Reddit user cautioned against the belief that India’s real estate market is poised to crash. ‘Those who subscribe to this will miss out on ever buying a property in top cities,’ the user warned. Dismissing the idea that real estate is ever ‘cheap,’ the user added, ‘A 3bhk was expensive at 50 lakh in 2010… expensive again today at 2 cr… and it will look expensive in future as well.’ Another chimed in, ‘Average home price/average salary of any major city have always been 10–15x… If market crashes, person with 5 Cr liquidity will buy 10 homes… Earn more so you could afford more.'”

“Highlighting the slow pace of development even within metros, one user noted, ‘When I moved to a location in North Bangalore… only now nearly after 15 years it feels like a part of Bangalore. Imagine how long it’ll take for tier-2 cities to come up par with tier-1?’ Their conclusion: ‘Maybe 3 generations down the road… RE will slowdown/crash. Until then, owning a house in tier-1 if you are expected to work there for more than 10 years is a no brainer.'”