One of the Canada's Biggest Banks Gets It
Low House Prices Not Bad News, Expert Says
Home site costs rise again yet low ones are better for everyone. We trim, blend, and append four 2012 articles from: (1) CNN, Nov 27, on prices by C. Isidore; (2) Reuters, Nov 28, on sales by J. Lange; (3) CBC, Nov 29, on land suction; and (4) CNBC, Dec 4, on bubbling by Diana Olick.
by Chris Isidore, by Jason Lange, by CBC, and
Home Prices: Biggest Rise In More Than 2 Years
Home prices posted the biggest percentage gain in more than two years in the third quarter, according to S&P/Case-Shiller.
The 3.6% increase from a year earlier is more than three times the rise in the previous quarter and was the biggest jump in prices since the second quarter of 2010.
The rebound is spurred by a combination of record low mortgage rates, an improving jobs market, and a drop in foreclosures to a five-year low, reducing the supply of distressed homes available.
The latest rise in the Case-Shiller index was the second straight quarter of year-over-year increase, while the monthly annual reading has climbed for four months in a row, with six straight month-over-month increases.
Home prices are now back to where they were in early 2003 before bursting in 2006. Even with the recent gain, the national index is down 28.6% from the peak level reached the first quarter of 2006.
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New Home Sales Stagnant
New U.S. single-family home sales fell slightly in October and sales for the prior month were revised sharply lower.
The Commerce Department said on Wednesday sales dropped 0.3 percent last month to a 368,000-unit annual rate, while September's sales pace was revised to 369,000 from 389,000.
Some analysts suggested the decline in sales in October might be partially due to Sandy. New sales plunged 32.3 percent in the Northeast, which bore the brunt of the storm. However, the Commerce Department said the storm's impact on sales was likely "minimal".
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Low House Prices Not Bad News
A slowdown in house prices isn't necessarily completely negative for Canada's economy, one of the country's largest banks said.
"Cheaper home prices could bring winners as well as losers across the economy," CIBC World Markets economist Avery Shenfeld said.
After a multi-year run-up, price gains have slowed down and even started declining in many Canadian cities. The Canadian Real Estate Association reported recently that the average price of a Canadian home was $361,516 in October, virtually unchanged from a year ago.
"What of the young newlyweds scraping by on mac and cheese in order to save for their first home? A slip in prices could ease that task, freeing up spending power in the process," he said.
Every dollar spent on housing [actually, never-produced land] is a dollar that could otherwise be spent somewhere else. So if a would-be homebuyer is able to knock $10,000 off the purchase price, that's $10,000 that's likely to be spent somewhere else, instead of pledged to a bank to pay back the mortgage.
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How Rising Home Prices May Actually Stall the Recovery
The rise in prices is mainly due to investors, mostly large hedge funds, that have been swooping into the most distressed markets and inhaling properties as fast as their plentiful cash will allow. They are turning those properties into rentals, and getting anywhere from 8 to 12 percent returns on their investments, thanks to still hot demand. As home prices rise, those returns shrink.
Home prices are recovering locally at drastically different paces. Some markets are still in the red, while others are surging forward with double-digit gains. Those that are seeing the biggest jumps are largely the markets that saw the deepest losses.
Another 14 million borrowers still owe more on their mortgages than their homes are worth and are therefore unable to move.
Five million properties are either in the foreclosure process or their owners are delinquent on their mortgages. That means foreclosures will remain elevated for the foreseeable future, and investors will be necessary to absorb them.
Another concern is that home prices are rising faster than income, which could push potential owner-occupants away just as they were starting to dip their toes in again.
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JJS: Whenever somebody in the mainstream media makes sense, that’s newsworthy! It is ironic, tho’, that something as logical and beneficial as affordable home sites qualifies as news when it should be plain vanilla obvious. Well, that’s what a few uninterrupted centuries of fervent and self-righteous speculation in land will do to a society’s worldview.
If we were to deal fairly with each other when it comes to land and the profit it can generate, we would not make that money the low-hanging fruit for speculators. Instead we’d declare and agree that the worth of Earth is common wealth. Our planet was not produced by any of us while the value of locations is generated by the members of society in general and so belongs to each one of us equally.
There’s a way to put this land ethic into practice. We’d have our governments recover the socially-generated value of sites and resources via a tax, fee, dues, whatever, and not tax our efforts, our earnings, purchases, and buildings. We’d have our governments pay us a dividend from these recovered “rents” and not subsidize special interests. This new revenue policy could be called “geonomics”. And because the world was designed to work right, this fair and efficient policy has benefited people wherever it’s been tried.
Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .
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