The Housing Bubble

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A report from iAfrica. “The CEO of the ERA South Africa property group, Gerhard Kotzé says, ‘We now learn that South Africa had the best performing housing market in the world over the longer term according to figures from the authoritative ‘Economist’ magazine. The publication’s Global House Price Index shows that SA house prices rose by a cumulative 418 percent over the past 12 years (1997-2009). That far outstrips any of the other 20 housing markets tracked by the index. The next best performers were Australia, Britain and Spain with growth of 181 percent, 175 percent and 167 percent respectively. More importantly, the Economist reports that South Africa is one of only a few countries in the world that has house prices back at their peak levels of 2008.’”

“‘Home owners still hard pressed to meet their mortgage payments will look askance at these numbers. However, for those who have managed their financial affairs well it’s apparent that property remains an excellent investment. However, in keeping with the old adage that ‘It is not timing the market that counts, but time in the market’ then home buyers should continue to buy in on the basis of sound investment principles. It’s certainly not the time to start speculating,’ adds Kotzé.”

From Modern Ghana. “There is something going on here which has not happened before. People here are snapping up luxury condos and town-homes like there is no tomorrow, and some smart developers in town are responding to the brisk demand very briskly too. Demand for luxury real estate in safe residential neighborhoods has become a sport. People can’t wait to see the ground broken by a developer in these neighborhoods before they swoop in to register their interest quickly.”

“The Airport Residential Area in particular has become a haven for high rise condominiums and town homes. Driving through this area these days feels like driving through the Wilshire corridor in Beverly Hills, California. Condo units here are selling from US $295,000 and up, depending on number of bedrooms and baths. Savvy investors are snapping up these properties briskly at today’s prices because they know that these will be the multi-million-dollar properties of tomorrow, just as it happened in New York, Los Angeles, London, Paris or Tokyo over the years.”

From Bloomberg. “Billionaire investor Sam Zell’s Equity International is seeking to raise about $500 million to step up investment in Brazilian real estate. The firm will invest as much as two-thirds of the money in Brazilian companies tied to the residential and commercial property industries, CEO Officer Gary Garrabrant said. ‘Our enthusiasm for Brazil could not be higher,’ Garrabrant said in a May 18 interview in Sao Paulo. ‘You’ve got this local demand that’s unparalleled.’”

“‘There are less than 400,000 mortgages in Brazil — I think there are 400,000 mortgages on the Upper East Side of Manhattan,’ Garrabrant said. ‘Will the Brazilians catch up? No question.’”

“Equity International may invest in Colombia for the first time with its new $500 million fund, Garrabrant said. Colombia has ‘great demand’ for affordable and middle- income housing, he said. The firm is also looking at opportunities in China and ‘frontier markets’ including Vietnam, Indonesia and Morocco.”

The Real Deal. “Asking prices for homes in some areas of Belize have dropped by as much as 50 percent, according to David Cox, a director with international property investment consulting firm Property Frontiers. ‘Although local agents claim only a slight fall in Belize real estate prices, the reality is different,’ Cox said.”

“Beachfront condos with asking prices of $250,000 are not unheard of, according to the Vancouver Sun, which noted that relaxed residency laws also add to Belize’s appeal among retirees. Of course, there are some drawbacks for newcomers to Belize. Prime Minister Dean Barrow announced in March that the general sales tax was climbing to 12.5 percent in the coming fiscal year, a 25 percent increase, in order to help deal with rampant poverty.”

The Times Transcript in Canada. “The 2010 Re/Max Recreational Property Report reveals that out-of-area bargain hunters are helping to keep the heat cranked up on the Shediac Bay area cottage real estate market, and it seems more and more of those buyers are American. That kind of outside pressure has helped maintain the pace in the Shediac Bay area, and push up the starting price of a three-bedroom, winterized recreational property on a standard waterfront lot to $230,000 compared to $200,000 last year.”

“‘If you look at the opportunity, once you made your money elsewhere, and you want to still travel, that’s a bargain compared to other areas,’ he said, noting that 1,000-square-foot waterfront condos in Vancouver are priced in excess of $3 million. ‘In Calgary or Toronto what could you find for $230,000?’”

“While $230,000 is the starting price, Gagnon said cottages are selling for prices in excess of $1 million and even $2 million in the area. And Gagnon said prices will continue to rise in those high-density cottage areas as waterfront properties become increasingly scarce. He said that increased scarcity is pushing prices in those areas closer to asking prices in Nova Scotia’s prime cottage country. ‘It’s availability. As it becomes more rare, everything goes up, values goes up, and we definitely can compare our area to some of those nice ones in Nova Scotia, and we have the nice weather, especially in the summer,’ said Gagnon.”

“Gagnon said it’s only a matter of time until development in the already prime cottage areas pushes buyers to venture further up and down the coast for better deals. ‘It’s a matter of time once everything is sold or at a certain price,’ said Gagnon. Gagnon said the always-changing landscape of the real estate market means buyers are taking advantage of deals now before prices start to climb significantly along other stretches of the coast.”

“‘If you see something that’s really nice you might as well buy it now because in five years it may be gone, or you might not be able to afford it,’ said Gagnon.”

The Regina Leader Post in Canada. “That ‘little piece of heaven’ you always dreamed about — a lakefront cottage overlooking one of the lakes in Saskatchewan’s scenic Qu’Appelle Valley — just got a little bit more expensive. According to Re/Max, a three-bedroom, winterized recreational property on a standard waterfront lot on Last Mountain Lake will set you back $400,000 — and that’s the starting price.”

“‘If you’re looking at lakefront properties, you’re generally going to be looking at $1,500 to $2000 per foot,’ said Craig Adam, a realtor with Re/Max Crown Real Estate in Regina. ‘So if you want 100 feet of lakefront, that’s going to cost you $200,000 — at least. That’s just for the lot. Is it serviced, does it have water, does it have natural gas? How far out of the city is it?’”

The Sydney Morning Herald in Australia. “It is Melbourne’s mega house. The 481-square-metre (or 52-square) behemoth at Alamanda village in the outer western suburb of Point Cook is the largest display home ever in Melbourne. With five bedrooms and five bathrooms, it is even bigger than socialite Rose Porteous’s Toorak townhouse on Irving Road - which is on the market for $7 million - but is a 10th of the price.”

“Australia already lays claim to having the largest new homes in the world, having overtaken the US in 2008-2009 in the wake of the financial crisis, according to the Bureau of Statistics. Porter Davis says it has been surprised by the lack of interest in its 52 square display mansion since it was built 18 months ago and would not build another display house of that size again.”

”’Buyers in the recent years have gone for the hamburger with the lot and we’ve built houses up to 60 squares,’ director Paul Wolff said. ‘But at the moment the majority of our sales are in the smaller or lower-end homes, and all our products are being downsized. The land market changed very quickly and it caught us napping a little.”’

“However, SQM Research property analyst Louis Christopher said block sizes under the new regulations were still oversized compared with the rest of the world and he did not think buyers’ taste for large homes would change. ”The general trend for bigger and bigger dwellings continues, despite the number of occupiers per dwelling having fallen,’ he said. ‘We regard our house as a status symbol and unless we have a major economic downturn, it’ll keep going because we have the block sizes to do it.”’

YourMortgage in Australia. “Any hope of a revival in the first homebuyer market in Western Australia now appears to be in vain, with the latest data showing the number of first-time buyers sinking to a new low. Alan Bourke, REIWA president, said the latest FHOG data for April, coupled with reiwa.com sales and listings data, confirm the softening trend across many markets. ‘The effects of six interest rate rises and the collapse in first homebuyer activity since January is now evident in all market indicators for Perth and Regional WA. The artificial boom of first-time buyers triggered by the Commonwealth grant has now well and truly ended.’”

“REIWA also found that overall sales activity fell by 15% in Perth during April, with preliminary data for May suggesting there has been no further improvement. ‘This trend is matched with a steady increase in listings, which have risen,’ said Bourke. It’s a similar story in regional WA, with reiwa.com showing sales falling in Mandurah, Bunbury and Geraldton during April. ‘All of REIWA’s broad market measures suggest there is little pressure on prices,’ Bourke added.”

Property Community in Australia. “There is no speculative real estate bubble in Australia, according to the country’s Reserve Bank. The bank’s head of financial stability Luci Ellis said that house prices have recovered from their small decline of 2008 to post increases of between about 12 to 15%, depending on the measure. ‘We do not have a credit fuelled speculative boom on our hands. However, it would not be desirable for the current situation to turn into one. It will therefore be important for lenders to remain prudent in their standards,’ she said in a speech.”

“‘It will be equally important for prospective borrowers to have realistic expectations, and not to rely on a hoped for capital gain in order to service their debts,’ she told a residential property conference.”

ABC News in Australia. “Ellis says most of Australia’s heavy housing debt burden is resting with those most able to afford it. ‘Our assessment is that the increase in debt has broadly been concentrated in the hands of those generally more able to service it,’ she told a residential property conference.”

“However, she also cautions that investors should not race into the market expecting capital gains in housing to continue indefinitely and underpin their ability to service their debts. ‘If too much of the response to faster population growth comes as faster growth in housing prices, this could be built into people’s expectations,’ she warned. ‘If price expectations become over-optimistic and encourage too much investor demand, the result could be disappointment - or worse.’”

Money Morning Australia. “Ms. Ellis would naturally deny the existence of a credit boom considering it’s her employers that have caused it. We liked this comment in her closing ‘Final Thoughts’: ‘Recent data suggest that we do not have a credit-fuelled speculative boom on our hands. It would not be desirable for the current situation to turn into one.’ We have this image of Ms. Ellis standing in front of a large bubble that she’s tried to cover with an overcoat, insisting to passersby that there’s nothing to see.”

“But what ‘recent data’ would Ms. Ellis be referring to? I mean, it couldn’t be the data from the Australian Bureau of Statistics (ABS), the chart of which Ms. Ellis used to open her presentation. Because pardon us for commenting, that’s got bubble written all over it.”

“Prof. Steve Keen pointed out in an article for Business Spectator last week that if population growth running faster than new dwelling growth leads to rising house prices, why didn’t house prices fall between 1955 and 2004 when dwelling growth exceeded population growth? The simple answer is that the real driver of house prices is easy credit. Plain and simple. And when that stops – which it hasn’t yet remember… POP!”

The Southland Times in New Zealand. “Southern property investors would be calling their accountants to look at how changes to the tax system announced in yesterday’s budget would affect them, financial leaders said. WHK principal Neil McCara said he believed the changes would cool the housing market. He said other measures designed to take the heat out of property, such as cuts to the official cash rate had not worked. In the south, property investment was an option considered by many “mum and dad investors” whom may now be reconsidering their holdings and future potential investment. The announcement would shift the behaviour of Kiwis away from an over-reliance on property, Mr McCara said. ‘These changes will force that,’ he said.”

“Harrex Group director Brendon Harrex said the tax changes provided an incentive for capital retention by business and for additional funds to flow towards business investment rather than property. That was clearly viewed by the Government as a more productive use of funds than the tax incentives offered by property investment, Mr Harrex said. ‘There has been plenty communicated about the concerns around New Zealand’s tendency to over-invest in property.’”

The Peoples Daily in China. “After China’s State Council launched new policies to curb the spike in housing prices, the number of transactions in first-tier cities declined sharply. Feng Lun, Chairman of the Board of Vantone Group, said that the new policies would result in a 20 percent to 30 percent decline in housing prices. ‘The new policies will lead to a fundamental change in the ‘function’ of the real estate industry, leaving little chance for a rapid rebound,’ Feng said.”

“Pan Shiyi, president of SOHO China, also said that home prices would go back to the 2009 level, down 15 percent to 20 percent. ‘The government is determined to regulate China’s real estate industry this time, and is preparing a series of measures to prevent home prices from rebounding,’ said Wang Haibi.”

“Some analysts thought that regulations may have failed to consider some aspects of the market and housing prices would start rising again soon.”

From Xinhuanet in China. “The strict measures rolled out by the Central Government to rein in soaring property prices over the past month have delayed purchases by potential buyers in most urban areas. However, high housing prices are still hanging over many major Chinese cities, domestic media reported in recent days. In Beijing, property prices grew by 14.7 percent in April year on year, peaking in the past 10 months, the China Daily cited statistics from the capital’s statistics bureau. The average housing price inside Beijing’s fourth ring road from January to April reached 34,112 yuan (US$5,016) per square meter, it said.”

“In April, the price of newly built houses in Shenzhen reached 20,567 yuan per square meter, a year-on-year increase of about 67 percent, while the total area sold in the city dropped to 291,200 square meters, a year-on-year decrease of about 61 percent, statistics from the Shenzhen bureau of land and resources showed.”

“‘Shenzhen’s property market is starting to show a downward trend with drops in both transaction and price,’ a report from the city’s major realty agency Shenzhen Centaline said, according to the Shenzhen Economic Daily. Shenzhen Centaline sold only 422 houses between April 16 and May 15, a 89.6 percent decrease compared with the 30 days prior to the implementation of the new curbing measures, while their average price dropped by 9.17 percent, the Shenzhen Economic Daily said.”

“Property prices in second- and third-tier cities are also increasing slightly, attracting speculative homebuyers to avoid the strict macro-control policies. Chen Long, an analyst from the Wuhan Efang Research Center, said most property developers are not planning to offer any discounts on housing prices and most potential homebuyers are adopting a wait-and-see attitude at the moment.”

“Relatively low housing prices and relatively free policies have also attracted speculative property buyers to invest in second- and third-tier cities, industry figures showed. Electricity in a large number of houses in 660 cities had not been used for more than six months, indicating an unexpectedly high vacancy rate in the country, according to recent records from the State Grid.”

The Toronto Star. “Clouds of thick black smoke shrouded central Bangkok on Wednesday morning, and the sound of live gunfire echoed from the main anti-government protest site, as the government’s final assault began. The anti-government protests by the Red Shirts, formally called the United Front for Democracy Against Dictatorship, have occupied three-square kilometers of Bangkok for weeks, paralyzing the city. More than 60 have died in bloody battles between protestors and government troops since violence erupted on April 10.”

“Protesters have accused the government of Prime Minister Abhisit Vejiajiva of ruling in the narrow interests of the country’s moneyed and well-connected elites, especially those who are intertwined with the country’s royalty. A short 10-minute taxi ride away from the protest zone, at the Esplanade shopping plaza, there was no shooting, nor any sign that anything in this city was amiss.”

“The Esplanade is like an entirely different city: no clack of guns, no bursting grenades, just soft muzak, soothing indoor water fountains, and chic shoppers in pursuit of first-world goods. It’s a reminder of the great divide that exists in Thai society, between those who have and those who don’t — a fact that fuels the discontent in Thai society that underpins the Red Shirts’ protests today.”

“In the Metro Sky showroom on the second floor, for example, 45 square metre, 1-bedroom condos are selling for $110,000 — beyond the reach of many in a country where the average annual income is just $4,000. Not surprisingly, soft-spoken sales rep Kulacha Lertsupanan is watching developments across town with a wary eye. There has been a noticeable drop in customers since the troubles began, she notes, and those who are looking seem less willing to spend money now.”

‘She’s worried, she says, but has faith that the crisis will ultimately pass — like so many in Thai history. ‘I think the value of condominiums here will continue to rise,’ she says.”

Post off-topic ideas, links and Craigslist finds here. The DC meetup link at the forum is here. Click here for the shadow inventory thread.