June 17, 2014

The Investors Love Affair Has Substantially Wound Down

A report from the Coloradoan. “Fort Collins housing prices hit their highest average in city history last month, topping $313,000 per home sold in May. That’s a 19.4 percent increase from May 2013 and could be the harbinger of higher prices to come. ‘These price levels are unprecedented,’ said Dave Pettigrew, a residential Realtor who closely watches the Fort Collins market. ‘The highest price in the Fort Collins area prior to this was in July last year, when the average sale was $285,501.’”

“How is it possible to have housing prices this high in Fort Collins ‘when most jobs for the college educated appear to only pay between $30,000 and $50,000 a year?’ asked Peter Gibbons on the Coloradoan’s Facebook page. ‘Who can afford a $300,000 house on such incomes?’”

“The 19.4 percent increase in home sales prices in May is not sustainable, said CSU regional economist Martin Shields. Fort Collins has recovered the 6,000 jobs lost during the recession and the unemployment rate was down to 4.4 percent in April, but many recovered jobs are part-time or lower-wage positions. ‘The economic fundamentals don’t support an overall 20 percent price increase in terms of labor market or wage,’ Shields said.”

The Colorado Springs Gazette. “Perhaps only a mountain trail has more twists and turns than the Pikes Peak region’s single-family housing market. As mortgage rates plunged and the economy improved, demand picked up. In 2012, and continuing into 2013, prices climbed and homes began to sell in days and weeks instead of months, giving the edge to sellers. But the market turned around again late last year, as sales and prices cooled during the fourth quarter. That slowdown continued during the first several months of 2014.”

“The median price of homes that sold in February, March and April fell when compared with the same months in 2013, Realtors Association figures show. There were 34 homes priced at a half-million-dollars and more that sold in April, a 17.2 percent increase over the same month in 2013, Realtors Association figures show. Even so, plenty of pricey homes remain on the market; the number of $500,000-and-up homes listed for sale in April was about 27 percent higher than in April 2013. ‘As you go up in price, there’s some wonderful opportunities,’ said Kevin Patterson of The Patterson Group. ‘But there’s only so many buyers out there.’”

“There were 3,671 homes listed for sale in April, according to the Realtors Association - the most for any month since November. Seven to eight years ago, the market was so strong that even overpriced homes were getting offers, and buyers didn’t seem to care what they paid because they expected home values to continue to rise, said Becky Gloriod, a longtime Springs real estate agent. ‘They were more anxious to get into a house they liked, and they weren’t worried about the price they were paying,’ she said. That’s not true anymore. ‘Things don’t fly off the shelf,’ she said. ‘Sellers have got to be realistic.’”

The Albuquerque Journal in New Mexico. “Thousands of homebuyers and sellers in New Mexico are eligible for a national discount program that could save them thousands of dollars – if only they knew about it. Working or retired teachers, police officers, firefighters, health-care workers, veterans and members of the military all can receive discounts through the national Homes for Heroes program. There is some marketing involved in being a Homes for Heroes real-estate agent — each pays a $1,200 annual fee to be an exclusive affiliate for certain ZIP codes and get referrals from the corporate office – but the main benefit is the satisfaction of doing something to help others.”

“‘My philosophy is I don’t need to make all the money, I just need to make some money,’ said Realtor JoAnne Brown, co-owner of Brown & Associates. ‘There’s enough money being made on some of these deals. I don’t mind sharing.’”

KTAR in Arizona. “It’s starting to look like Valley home prices aren’t likely to go up for the rest of the year. Lower demand for homes is the reason. Michael Orr, director of the Center for Real Estate at ASU’s W. P. Carey School of Business, said that local home sales actually dropped 16 percent between April 2013 and one year later. ‘We started slowing down from August onward last year,’ Orr said. ‘We’ve now got to the point where the total number of sales for the year so far is the second-lowest since 1999.’”

“The supply of available homes in the Valley has increased of late. As of May 1, there were 73 percent more active listings in the Phoenix area than there were at the same time a year ago. Despite the slowing of sales, Orr said that the Phoenix real estate market is healthy, and there’s little chance of a crash like that seen during the recession a few years ago.”

The Phoenix Business Journal. “Metro Phoenix was one of the first markets in the country to experience the investor buying spree, starting around 2011. Investor activity peaked in July 2012, making up almost 40 percent of all Valley home sales, according to Arizona State University research. That high investor demand shoved the market into a frenzy as prices climbed steeply. But investors’ love affair with the Valley has since substantially wound down. Investor purchases slipped again to only 16.3 percent of all sales that month, according to a new ASU housing report.”

“But regular buyers have been slow to make up for the loss in investor buying activity. In April, single-family sales Valleywide were up about 9 percent from March but down 16 percent year-over-year, the report said. ‘New home sales were down 12 percent from last year and because very few investors buy new homes, we can conclude that something significant has changed in buyers’ motivations,’ said Michael Orr, the report’s author.”

The Ahwatukee Foothill News in Arizona. “A new survey from Zillow is projecting that metro Phoenix home prices will rise 3.6 percent by April 2015. That is not a significant increase compared with the 17 percent rise last year and the 30 percent jump in 2012. ‘Zillow’s forecasts are for entertainment purposes,’ said housing analyst Mike Orr, of Arizona State University’s W.P. Carey School of Business. ‘Zillow is not predicting changes in home prices. They are predicting changes in their own Zestimates.’”

“So, what can we expect for the rest of 2014? In assessing our local market in Ahwatukee, it appears that prices might be stagnant this year or even dip a little. Given the current days on the market for some properties, sellers might have to drop their prices to get an offer and eventually sell their homes. If your home has been on the market for six to nine months or more and you have not received an offer, it is probably an indication that buyer’s do not view the property the same way that you and your agent do at this time.”

“So, keep that in mind when determining the list price of your home. Overpricing initially tends to mean longer days on the market and lower final sales price.”

Swathes Of Empty Houses

A report from the South China Morning Post. “Half-built roads, high-rises under construction and plastic garbage shining under the sun: those were the images that frequently flashed by on a two-hour drive between the Shenzhen Bay-Hong Kong border and the third-tier city of Huizhou. Huizhou is now at the centre of a storm that is hanging over the mainland’s slowing economy. And a developer, Guang Group, is having cash-flow problems. ‘We are just here for a look,’ said a middle-aged woman accompanying a young couple as they got out of a car. Five minutes later, they were gone, refusing to leave her their number when asked for it. They were the only group to set foot in the showroom in about half an hour.”

“Another developer is selling its project at a discount at 6,000 yuan (HK$7,490) per square metre and helping homebuyers dodge down payment restrictions. Many other small cities and towns across the mainland are finding themselves confronted with the same challenge: a cooling property and land market is drying up local government coffers. ‘Like many third and fourth-tier cities, Huizhou’s population and industrial growth are two or three years behind its property development, causing an oversupply of homes at the current stage,’ said Zhou Xiaren, a deputy head of property services firm Worldunion’s Huizhou branch.”

From Xinhua. “The Chinese cities of Ordos, Yulin and Shuozhou have been hurt economically over recent years due to plunging coal prices. According to government data, Ordos’ YoY GDP growth dropped by 7.5% during the Q1 of 2014, while Shuozhou’s slipped by 5.4% and that of Yulin fell by 1.4%. Excessive investment in real estate has also resulted in a serious imbalance in supply and demand, and since coal prices began falling, real estate in these cities has become unmarketable. The mayor of Ordos stated in March that there were 40,000 units of housing available for sale and that the city will not build any new housing over the next three years.”

“According to the data, a mere 600 square meters of housing was sold during the first two months of this year, plunging 97.5% from a year ago.”

Want China Times. “Amid the sluggish realty market, land sales in major Chinese cities have plunged, leading to sharp declines in their realty-related income. Sharp declines in land transactions have caused major financial problems for some cities with a heavy reliance on realty sales, such as Hangzhou, Foshan, Nanjing, and Changsha, with the financial reliance on realty transactions all surpassing 100%.”

“The realty-related income of Ordos, in Inner Mongolia, for instance, has topped only some 1 billion yuan (US$160 million) so far this year, a far cry from some 10 billion yuan (US$1.6 billion) annually in previous years. ‘Stagnant land sales are a major financial problem for Ordos, which has to repay some 30 billion yuan (US$4.8 billion) in debt this year,’ remarked a financial official from the city.”

From Shanghai Daily. “New home sales in Shanghai remained below the 150,000-square-meter threshold for the fourth straight week despite a week-on-week increase. The purchases of new homes, excluding government-funded affordable housing, rose 26.4 percent week on week to 140,700 square meters during the seven-day period ended on Sunday, Shanghai Uwin Real Estate Information Services Co said in a report. The gains were mainly due to sales at a mid- to low-end project in outlying Jiading District, said Huang Zhijian, chief analyst at Uwin. ‘The overall volume for June may remain very low if real estate developers continue to maintain their prices without offering any big discounts,’ Huang said.”

“More than 210 units at the Jiading development were sold last week for an average price of 16,715 yuan (US$2,692) per square meter, Uwin data showed. This brought the average cost of a new home down 12.5 percent week on week to 25,916 yuan per square meter citywide. Lu Qilin, a researcher at Shanghai Deovolente Realty Co, said: ‘The average price recorded last week was down 18.7 percent from the average price registered at the same project during the second half of last year.’”

From City AM. “There is nothing like a stark statistic to put this into context: according to Bill Gates’s article in Quartz, China has used more concrete in the last three years than the US did in the 20th century. There are just 7,758,818 tonnes of concrete in the Hoover Dam, meaning that in three years China has built the equivalent of 838 Hoover Dams at the rate of about 23.25 a month.”

“Except China hasn’t been investing this concrete in intergalactic infrastructure or hydro-electric power. Instead, in part, the concrete usage has gone towards swathes of empty houses. According to an article in the Wall Street Journal, around one in five houses in Chinese cities was empty in 2013 (22.4 per cent) - which works out as 49m homes in urban areas alone. This is almost twice the number of homes there are in the UK, which is around 25m.”

“Some of that concrete went into building a version of Paris, complete with Eiffel Tower and a Versailles fountain. The town was supposed to hold 10,000 people but instead is home to around 1,000. There is also a deserted mall, one of the biggest on earth, where toy shops wait days to sell a single toy. And Kangbashi: a ghost city meant to house a million people but home to a mere 70,000. Despite the empty metropolises, China is still building.”

From Quartz. “Back in 2009, China’s 8,500 listed companies were in much better shape than their global peers. No longer. The average Chinese company now has worse cash flows and more debt than other similar firms elsewhere in the world, says Standard & Poor’s. So great has China’s borrowing binge been that its companies racked up $14.2 trillion in debt at the end of 2013, blowing past the US’s $13.1 trillion to become the world’s biggest corporate borrower. This, says S&P, is worrying since a ‘higher risk for China’s borrowers means higher risk for the world.’”

“In late 2008, China’s leaders opened the lending taps, pumping huge sums of credit into the system via state-owned banks. Much of that went into growth-juicing sectors like real estate, shipbuilding, and steelmaking. The timing was bad; China’s economic growth had already peaked in 2007, and was starting to slow. As Chinese companies expanded their ability to produce—building new factories, buying more land, and the like—they created a excess of supply that began to drive down prices. Then the slowing economy hurt cash flows even more.”

‘But instead of letting companies default, leaders kept pumping more money into the system. Though these problems became too big to ignore last year, they keep getting worse. That could hurt the global economy, says S&P. ‘As the world’s second largest national economy, any significant reverse for China’s corporate sector could quickly spread to other countries,’ it notes in a report.”

“Unfortunately, Chinese corporate borrowing isn’t really slowing down. S&P says that, by 2018, Middle Kingdom companies will have issued between $21.9 trillion and $23.9 trillion in debt—equal to one-third of global corporate debt, including refinancing and new issues. That implies an average annual increase of between 7.5% and 9%—much faster than China’s economy is able to grow.”

Bits Bucket for June 17, 2014

Post off-topic ideas, links, and Craigslist finds here.