There are lots of us out there wondering how economic conditions and the down real estate market will play out over time. How will each of us be impacted? How are those being most impacted getting through times like these? What should we all be doing to weather the storm?
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For the second year in a row, Mercer Human Resources Consulting has named Russia’s capital the most expensive city for expatriates to live. The study measures the cost of housing and 199 other living expenses such as food and clothing. Mercer noted that Moscow’s continued dominance was driven by its high rents and favorable exchange rate against the U.S. dollar
London came in second, with 3 Asian cities (Seoul, Tokyo, and Hong Kong) completing the top five. The strength of the Euro pushed 6 European cities into the top ten as U.S. cities slipped (New York was rated the most expensive in the country, but came in 15th overall). Looking for the cheapest places to live? Try Quito in Ecuador (141st), Karachi in Pakistan (142nd), and Asuncion in Paraguay (143rd, last).
A while back we highlighted a report by Citi Private Bank and Knight Frank that focused purely on property rankings. London was crowned most expensive, just ahead of Monaco. Surprisingly, Monaco doesn’t even make Mercer’s top ten. Do the two reports contradict one another? One logical explanation is that everything besides housing in Monaco is a steal…sounds unlikely. A more probable explanation is that Mercer’s study looks at rental rates while Citi/Knight Frank just analyzed property prices and appreciation. With its skyrocketing property prices and reputation as Europe’s favorite tax haven, people go to Monaco to buy…not rent. The two reports may not completely contradict each other after all…
Source: BBC News
Today I read a very troubling article about the subprime mortgage woes and the continuing impact it is having on so many families. The article was published by the Real Estate Journal. A month or two ago, everyone was blogging about this issue. You couldn’t visit a real estate blog without seeing at least one small blurb about how foreclosures rates were skyrocketing. Since then, the coverage has died down but this is by no means an issue that has gone away. Foreclosure rates continue to hold steady in places and rise in others, while entire neighborhoods throughout this country are being destroyed. Here are a few quotes from the article:
– The flood of cash has also encouraged people to get into financially precarious positions, often precisely at the time when they were least able to afford it. In doing so, it may have temporarily alleviated — but ultimately worsened — some of the nation’s most acute economic problems.
– The market was feeding an addict at its neediest point…Individuals will resist reductions in their standard of living with everything in their power, including mortgaging their futures.
– The borrowers’ difficulties raise questions about how the extension of easy credit to large swaths of the U.S. population will ultimately affect people and the broader economy — questions that have gained in urgency as a sharp rise in defaults has policy makers wondering what, if anything, they can or should do.
High rise developers are increasingly going green. If you follow this blog, you’ve read about the Macallen Building we featured (thanks to the Boston Condo Guy). Developers are installing energy efficient windows, lasting fluorescent light bulbs, solar panels and green roof’s.
On NPR today, there was a segment on green building pointing out that no matter how green high rise buildings are, they are still produced with tons of steel increasingly imported from China because of the cost savings.
The problem is that producing a ton of Chinese steel causes a lot more carbon-dioxide pollution than a ton of American steel. This is happening as many believe the U.S will pass a law forcing steel manufacturers to pay a tax for the carbon dioxide they emit, giving developers even more of a reason to import from China for the greater cost savings.
Even though this is the case, American developers shouldn’t use the “we’re going to do something and China’s not going to it, therefore we shouldn’t do it” excuse. We should continue the green building charge while putting pressure on countries like China to enforce policies limiting carbon dioxide emission.
Harvard Professor Edward Glaeser, who is an editorial writer for the New York Sun, just published an opinion article titled “Fight for Housing.” The article discusses the rise in in the sunbelt population. Over the past several years, cities like Houston, Dallas and Atlanta were among the 30 fastest growing metropolitan areas, growing by more than 800,000 people each. This compares to places like New York City growing at only 2.7%.
The question Mr. Glaeser is trying to answer is the following: “Does the rise of the Sunbelt reflect high levels of economic productivity, the glorious amenity of warmth, or, perhaps, just abundant new construction?”
Even though there are certain cities which attract large numbers, such as most cities in California, the migration to cities such as Dallas and Atlanta can’t be explained by the climate. “Their pleasant winters are offset by terrible summers. None of these cities have access to coastline or particularly beautiful scenery.” Put that with much lower land values (Los Angeles has a median sales price of $585,000 compared to Houston and Dallas at $150,000) and low family income. None of this explains these huge population growth numbers.
So what is the conclusion? These places build vast amounts of housing. “Houston may not have great summers or high productivity, but it does know how to build new homes.Last year, the Houston metropolitan area allowed 71,000 building permits. Since the number of homes essentially determines the number of people in a community, Houston’s fondness for development drives its population growth.”
You can read the full opinion article and the specific impacts this has on New York City at the following link.
A few months after Hurricane Katrina, a rebuilding commission informed former residents of the Broadmoor neighborhood in New Orleans that their homes could be razed to build parks if they didn’t return enough residents. That’s when the neighborhood decided to take their community back.
They organized a protest rally and a meeting to devise a plan to reclaim the neighborhood. The residents, many returning from Houston and Baton Rouge, had something to lose: the neighborhood had been designated historic and most of the 2,900 homes were Spanish colonials, bungalows, classical mansions, and double shot-gun houses built before the 1950s. So the residents executed a plan to save their homes:
1) They assembled in a double-wide trailer at a local church and created a database of the neighborhood’s 7,000 residents. They went on to assign block captains to monitor the area.
2) The residents reached out to the John F. Kennedy School of Government at Harvard and got help from students in writing and executing a rebuilding plan.
3) Residents aggressively contacted former neighbors, scattered across the country and gave those that were willing to move back assistance in finding doctors, temporary residences, and help gutting their homes.
Within a few months of releasing a blue-print of their neighborhood, they received $5 million in pledges from the Clinton Global Initiative. About 55% of former residents have returned to Broadmoor, but the community is now attracting new residents inspired by the neighborhood’s spirit.
The residents are now working to turn their library into a community center and open a charter school this year. For more details on the Rosa F. Keller Center and Library and how you can help, please visit Global Giving.
Source: New York Times
Photo credit: Joshua L. Halley for The New York Times
Some don’t realize that the US housing boom was actually global. In fact, US housing price appreciation trailed many European countries’. Global interest rates fell from 1996 to 2006 and consumers responded with hearty appetites for property purchases. That is, except in Asia.
Asia completely missed the decade long housing boom. As you can see below, prices in many Asian countries actually fell as the rest of the world experienced record appreciation:
Asia primarily missed the housing boom due to negative residue from the Asian Financial Crisis in 1997. The crisis left many Asian economies with prolonged periods of high interest rates. This and the anemic mortgage markets and mortgage options (good luck finding a FRM in Asia) made consumers cringe at the thought of taking on mortgage debt.
But even if consumers wanted to, banks were still recovering from the crisis, which left them strapped with large portfolios of bad debt. Banks needed to clean out this bad debt before issuing more loans. Excessive government intervention contributed to the strain on the market, along with a lack of credit information.
But things are changing. Most banks’ portfolios are healthier and they are more willing to issue mortgages. Although they are nowhere near the rest of the world, Asian property prices are bouncing back with Thailand, South Korea, and Malaysia leading the way.
Some even worry that the Asian market may begin to grow too fast. We’ll see about that.
Source: Global Property Guide