August 26, 2014

Snapshot: The Romance Only Works In A Rising Market

The Daily Mail reports from the UK. “One in five of the 171,000 loans taken out in the second quarter of this year had a term of 30 years or longer, according to the Council of Mortgage Lenders. Among first-time buyers the figure was even higher, at 28 per cent. Ray Boulger, of mortgage broker John Charcol, said: ‘Is there anything inherently wrong with 30-year mortgages? No, it depends on individual circumstances. The idea that a mortgage has to last 25 years is outmoded. Most people will be better off with a long-term loan, if the only alternative is renting.’”

This is Money UK. “Falling temperatures have put summer on hold — and our overheated housing market is following suit, cooling so rapidly that thousands of sellers are slashing prices. Rightmove says the average asking price of a home on sale in England or Wales has plummeted £7,750 in four weeks. That’s a 2.9 per cent fall, the biggest ever in August. London was the worst-hit region with prices collapsing 5.9 per cent in one month. In July alone, there was a 20 per cent surge in homes on the market, meaning supply now significantly outstrips demand in certain areas.”

“‘This is evidence of a summer sales mentality. We expect more price falls next month,’ says Rightmove’s market analyst, Miles Shipside, who believes the sharp price decrease is down to the public realising ‘a five-year holiday of low interest rates is coming to an end.’”

The Khaleej Times. “Johan and Alejandra are the kind of Swedes the IMF has been warning about - piling up debt to keep up with an ever-rising property market and fund a lifestyle of travel, maids and nights out. The couple plan to buy a flat in Stockholm for five to six million Swedish crowns (724,000 to 869,000), initially with an interest-only bank loan, among other spending plans. ‘I may travel, I may want to invest in a new business,’ said Alejandra, who runs a cafe in the city centre.”

“Four in 10 mortgage borrowers in Sweden are not paying off their debt, and those that are repaying the principal do so at a rate that would on average take nearly a century. Swedish property prices have nearly tripled in just two decades. In July, home prices rose at a double-digit pace from a year ago - the first time in more than four years.”

From Todays Zaman. “Sales of new houses fell for the sixth straight month in July, the Turkish Statistics Institute announced. In July, the number of houses sold was down by 20.2 percent compared to the same period of the previous year. In the same period, mortgage house sales also dropped by 32.9 percent year-on-year. July’s drop in house sales is a remarkable one, pundits argue, adding that upcoming months could see even sharper declines in sales.”

“‘It is not hard to predict further declines in house sales through the end of this year amid increased debts, low demand and high prices. … The housing markets face bigger risks,’ Yeliz Karabulut from securities company ALB Menkul Değerler told Today’s Zaman. She recalls that the Turkish construction companies had TL 95 billion ($43.6 billion) in unpaid debts in June, adding that this was an astounding 61 percent rise over the end of 2012, when the figure was TL 59 billion.”

“Cemal Gökçe, president of the İstanbul branch of the Chamber of Civil Engineers, told Today’s Zaman that housing sales would drop more than 20 percent during the last five months of this year. ‘The current picture reveals serious structural problems in the Turkish housing industry… there are not enough affordable units for the lower class,’ Gökçe said. He also referred to the growing risk of a housing bubble in Turkey markets. ‘The number of housing units on sale has exceeded the 1 million mark in Turkey; prices are high and this is not a sustainable situation.’”

The Business Recorder. “Many of Brazil’s biggest retailers, homebuilders and carmakers are cutting jobs as Latin America’s largest economy teeters on the edge of recession. Now jobs are disappearing in retail, construction and food processing, which had been reliable engines for growth and new employment over the last decade. In Bahia and Pernambuco, construction companies have cut over 14,000 jobs this year. New project launches by homebuilders in the second quarter, a leading indicator for construction jobs, fell 25 percent from a year earlier, according to J.P. Morgan Securities analysts. ‘There is no outlook for improved hiring among builders by the end of the year,’ said economist Danilo Garcia.”

The Sun Daily in Malaysia. “As part of an effort to curb speculative buying of properties by investor clubs, which is one of the causes of runaway prices of properties in the Klang Valley, Local Government Minister Abdul Rahman said developers who intend to sell more than four units to a purchaser must obtain prior approval from the Controller of Housing. According to him, the market has slowed down considerably with developers’ sales falling 50% so far this year. In Sabah, the Sabah Housing and Real Estate Developers Association (Shareda) announced a 65% drop in sales.”

“‘The romance has left the group buying clubs because it only works in a rising market…the lure of group purchase is not so much there anymore,’ he said.”

“‘Between 2011 and 2013, the market rose too high, too fast and too quickly. Now the market is screeching to a halt,’ said Malaysian Institute of Estate Agents president Siva Shanker. He said talk of a property bubble, property prices rising and responsible lending guidelines have created a negative market perception, which has slowed down the market but values are still ‘grossly inflated.’ ‘The market is in a tailspin and it has yet to recover,’ he told SunBiz.”

Want China Times. “China’s authorities have taken anti-corruption measures up a notch by mandating all government officials register their real estate on a digital platform. Officials with multiple properties have already begun dumping onto the market, reports our Chinese-language sister newspaper China Times. Zhang Xu, a real estate analyst said that the information platform might cause multiple house owners to undersell their properties. Zhou Feng, a manager at real estate firm Man Tang Hong, said that the demand for houses has been declining in the past few months, but that owners began underselling their properties several years ago when the war of corruption was first declared.”

The Globe and Mail in Canada. “One of the largest real estate companies in British Columbia says that more than one-third of all the single-family detached homes it sold last year went to people with ties to mainland China. Those buyers, the company added, tended to spend more money, too, with the average cost of a house sold to these clients topping $2-million, compared to $1.4-million on average overall. Richard Kurland, a Vancouver immigration lawyer who works with wealthy Chinese immigrants, believes Vancouver may see a slowdown in foreign investment. He said some wealthy Chinese buyers might get anxious and sell off second properties because of the current crackdown on corruption in China.”

“In meetings with top real estate agents earlier this year, Mr. Kurland predicted that luxury residential real estate could drop in value by as much as 25 per cent as foreign investment dips. As evidence, he points to July real estate figures that showed 106 homes for sale on the west side in the $3-million to $3.5-million price bracket, and just nine sales, compared to 73 active listings and seven sales during July of 2013.”

Bits Bucket for August 26, 2014

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