Rivers Of Fools Gold
Readers suggested a topic on relative bubble markets. “Why have property bubbles burst in some countries, but not in others? In Canada there is no sign of even a slowdown. In Europe the Irish bubble has well and truly burst, whilst in the UK prices fell 10% or 15% in 2009 but are now back to all time highs. People are more pessimistic about the economy in London than they are in LA, but London prices keep going.up. So why the huge divergence in property markets?”
One said, “Certainly the areas who had rapid growth based only on building vs growth based on real growth in multiple industries have gone down harder but I think there’s something more to it than that.”
Another added, “Supply and demand. Places like Phoenix, Tucson, Vegas, Orlando… There was never a shortage of buildable land. Lots of supply. There was also very little real demand. Lots of people coming to work, flip, etc, but they didn’t plan on staying long term. Places like coastal CA, Manhattan, London… There has been a lack of buildable land for a very long time. Shortage of supply.”
“People with lots of money but fearing devaluation of said money, are looking for safe haven inflation hedges. Gold, copper, oil, farmland… and real estate in desirable areas with a lack of supply.”
The Associated Press. “China’s richest are increasingly investing abroad to get a foreign passport, to make international business and travel easier but also to give them a way out of China. ‘In China, nothing belongs to you. Like buying a house. You buy it but it will belong to the country 70 years later,’ said Chinese millionaire Su, lamenting the government’s land leasing system. ‘But abroad, if you buy a house, it belongs to you forever.’”
“Alongside increased emigration there has also been a massive outflow of private money from China despite its strict currency controls. The report estimates that rich Chinese — those with assets of more than 10 million yuan — have about 3.6 trillion yuan ($564 billion) invested overseas. ‘The Chinese economy now looks like a massive funnel,’ said Zhong Dajun, director of the non-governmental Dajun Center for Economic Observation & Studies in Beijing.”
From Moneyville. “Hello Toronto. The Chinese are coming — and citizens from the world’s second largest economy are looking for some prime real estate. Chinese investors have been the largest buyers of pricey Central London real estate so far this year. In Sydney, they are credited with buying up to 60 per cent of all properties in new projects. And in Vancouver, they have been blamed for jacking average prices up by 25 per cent year over year.”
“Bank of Canada governor Mark Carney has already said Asian wealth is causing prices to move to ‘extreme’ levels in the Vancouver market, where the price of a standard bungalow is more than a million dollars. But while Vancouver has been getting the lion’s share of attention, Toronto has not escaped notice.”
“‘As Beijing reins in wildly overheated domestic residential markets, the middle class moves its growing wealth offshore into havens such as Canada, Australia and more specifically into Metro Vancouver and Toronto,’ said a recent report by Vancouver-based consultancy Landcor. ‘In China, real estate has long been regarded as a secure bet.’”
“At the spring launch, Johnson Cheng, sales manager at Peter Street condominiums in the city’s entertainment district, targeted the Asian market by taking out advertising in Chinese newspapers. After most of the units had been sold, he advertised in mainstream media. He estimates that an astounding 55 to 60 per cent of the buyers in that project were Asian investors. Most of the sales went to mainland Chinese buyers, some of whom were bused in on real-estate ‘tours’ to view properties.”
“It isn’t unusual for some investors to buy two or three condominiums at a time when visiting the city, said Cheng. ‘You get to see Niagara Falls, and in between you can go shopping for a condo,’ said Cheng.”
“Kitty Zhu, 24, bought two luxury downtown Toronto condominiums in the same building with her father earlier this year. She is living in a third property she bought last year.’The prices in Toronto are getting higher, but they are still okay when you compare it to China or Hong Kong,’ said Zhu.”
The Wall Street Journal. “In Miami, an invasion of foreign buyers inflated a speculative real-estate bubble that burst disastrously. Condominium values plunged, foreclosures soared and glitzy condo developments stood half-empty. Toronto is a long way from Miami, but the condominium boom north of the border has begun to evoke ominous comparisons, even among real-estate agents.”
“About 40,000 additional condominium units are under construction, including 16,000 set to hit the market next year. ‘There’s more supply coming than the market really needs, unless we have a stronger economy than we have today,’ says independent housing economist Will Dunning.”
From News.com. “Buying a home in Australia’s most populous state has become ’simply unachievable’ for some, real estate experts have warned. In a major blow to those looking to get on the property ladder, the NSW Government has scrapped stamp duty concessions for 80 per cent of first-home buyers. From January 1 next year, newcomers to the property market will no longer be able to avoid having to pay transfer title charges on existing homes under $600,000.”
“Real Estate Institute of NSW president Wayne Stewart said: ‘Australia weathered the last global financial crisis because the property market was invigorated. Yet those lessons have been ignored today.’”
“Martin Real Estate managing director Jeremy Martin added: ‘Between now and January rivers of gold will flow but after the party there will be a hangover.’”
The Age. “The number of first-time buyers entering the market has fallen to its lowest level in seven years despite the 20 per cent discount becoming available about five months ago. New figures also show the savings on offer - amounting to $5800 on a house at the median price of $565,000 - have been cancelled out by price rises in the city’s more affordable areas over the past year”
“The failure of the cuts to fuel buyer interest has been blamed on Melbourne’s long-running housing affordability crisis. ‘First home buyers are being very cautious about the fact that the market is in a downturn right now,’ said Louis Christopher, managing director of SQM Research.”
“James Champion, who has been looking for a first home for more than two years, believes his best option is to wait and see. The 34-year-old IT manager considers the stamp duty cuts and first home grants to be ‘fool’s gold’ that can whip up buyer interest but actually make housing even more unaffordable. ”I think housing in Australia is just excessively overpriced at the moment. I’d probably start to have a fairly good think about it if [price falls] got to 15 or 20 per cent,’ Mr Champion said.”
The Kensington & Chelsea Chronicle. “Property values in the Royal Borough have soared by 17.5% over the past 12 months, driven up by overseas demand and a short supply of housing. Robert Barlett, chief executive of the estate agents, said: ‘This month’s results highlight that the chronic shortages in prime central London are forcing prices higher in these areas, with average prices in Kensington and Chelsea breaking the £1m mark for the first time, and foreign investment into the capital is still at the forefront of driving price growth.’”
“One first-time buyer, Elizabeth Brewer, 29, has been saving for the past four years with her partner to try and buy a home in North Kensington. Miss Brewer, currently renting a flat in Fulham, said: ‘We have been saving for years to try and get a deposit together, but it feels like a bit of a cat and mouse game. We get a bit closer to having a deposit, and the goalposts move as house prices go up. We’re really stretched to what we can afford, but North Kensington is the kind of area we want to look in, as that’s where we work.”
“‘I’m not surprised that the average price in the borough is now £1m - I’m just surprised it wasn’t there already.’”
“House prices in Kensington and Chelsea are at their highest point ever, on average, but those in London as a whole are 2.5% below their highest ever point, which was set in February 2008.”
This Is Money. “Prices of new-build properties in London residential hotspots are predicted to more than double in the next four years, according to an upmarket estate agency. The biggest increase, of 140 per cent, would see a £300,000 property explode in value to £720,000.”
“It says prices in central London have risen 36 per cent since their low after the credit crunch and banking crisis two years ago. Nationally, the recovery has been far more modest. Figures from Halifax suggests house prices are down 2.6 per cent on a year ago. The agency’s analysts believes an improvement in the jobs market - particularly in the City - will underpin the market, together with increasing numbers of foreign buyers.”
“London house prices plunged in 2008 but saw a sharp recovery in 2009 and 2010 as bonuses returned for bankers and as a plunge in the pound again the euro and other currencies made Britain attractive to foreign buyers.”
“Grainne Gilmore, head of UK residential research at Knight Frank, dismissed suggestions that London’s property bubble might burst, saying the market will be supported by buyers with cash and less affected by changes in the availability of credit. She told Reuters: ‘We definitely wouldn’t class what is happening at the moment as a bubble … The fundamentals of the market in London are quite different to what they were in the rest of the UK [before the property crash].’”
“More Americans are reaching their 60s with so much debt they can’t afford to retire. All kinds of debt held by this age group have risen, but the big problem is mortgages. Thirty-nine percent of households with heads aged 60 through 64 had primary mortgages in 2010 and 20% had secondary mortgages, including home-equity lines, according to research group Strategic Business Insights’ MacroMonitor. That was up from just 22% and 12%, respectively, in 1994.”
“A few years ago, homeowners in their 60s with big mortgages could sell their homes for a profit and buy smaller places or rent. But the drop in housing values means that many homeowners have little equity, and some now owe more than their houses are worth. People with problems aren’t just those who took subprime loans or spent foolishly on lavish lifestyles. They are people from all backgrounds, including some with six-figure incomes.”
“‘We have gotten into this ‘debt’s OK’ mentality and it is going to be very hard to get out of it,’ says financial planner Greg Heller of Heller Capital Resources in Los Angeles, who says he has wealthy clients in their 50s with problems.”
“Many have little choice but to keep working. Christine Shiber, a 59-year-old Methodist minister in California’s Bay Area and her husband borrowed to buy a home and for their children’s education, something many Americans have done. They divorced in 2007 and sold the home, repaying debts. But Ms. Shiber needed a place to live. In 2008, she took out a fresh mortgage to buy a condominium. The down payment, together with her son’s college costs, used a big chunk of her remaining savings.”
“Soon, Ms. Shiber realized that she wasn’t making ends meet. She had trouble paying credit-card bills and started running a balance. Her 2001 Ford Focus needed a big, unexpected repair. She borrowed against her retirement account. ‘I imagine I’ll be working until I’m 70,’ says Christine Shiber, a 59-year-old Methodist minister in California’s Bay Area.”
“Rob Salvaggio of Glencoe, Ill., won’t turn 50 until later this month, but he already is expecting a financial hit when he retires. Mr. Salvaggio, who works for a real-estate manager, once dreamed of retiring at 55, but his mortgage, auto and credit-card debts are so high that he is aiming now at something more like 65. Because of heavy monthly debt payments, his wife has stopped contributing to her 401(k) and he is making only minimal contributions to his. ‘We aren’t going to be able to maintain or increase our standard of living in retirement,’ he says. ‘We are going to go backwards.’”
“Now, to provide stability for her son, they are determined to remain in the neighborhood where they live, even though it is expensive. When the landlord took back their rental home, they decided to buy another home, take on a mortgage and cut back on retirement savings. ‘We all agreed that it wasn’t the optimal idea,’ he says, although he hopes his home’s value will rise, permitting him to sell at a profit when he retires.”
