The Housing Bubble

A report from China Daily. “China will abolish all home purchase restrictions in the next 12 months and cut at least one policy rate in the first half of 2015 or before, said Shen Minggao, head of China research with Citigroup Inc. ‘Look around the world. No country keeps monetary policy unchanged when a correction starts in the property sector,’ Shen said in an interview. Most people agree that China’s property market is cooling, but they are divided about how the government should react. Some said more easing would further inflate the property bubble and lead to a systemic financial crisis. ‘Sure, there is a bubble, but the bubble does not have to burst now,’ Shen said.”

The Australian. “Sydney couple Daniel Yuen and Hua Ping Xu recently purchased a two-bedroom apartment in inner-city Sydney, and Mrs Xu said while prices were ‘ridiculous’ she had confidence in the market. ‘Honestly, my husband and I still believe the market will keep going up, we definitely think the price is too high, which means a lot of first-home buyers will struggle to afford to buy, but it is what it is,’ she said.”

“The couple paid $885,000 for the apartment in the Mezzo development in Glebe, but haven’t decided whether they will move into the unit once it’s completed.”

Today Online on Singapore. “With more than 20,000 non-landed private homes expected to be completed in each of the next two years, yields are expected to be further compressed. Vacancy rates of non-landed private homes have already been rising for five straight quarters to 8.3 per cent in the second quarter of this year. ‘We have noticed that many people are choosing to rent first and hoping that prices will come down later on. They sell off their properties and rent before getting their next home. We are also seeing people signing shorter leases because they are hoping for rents to come down,’ said Mr Chris Koh, director of property firm Chris International. ‘What we are facing now is oversupply that’s going to put a toll on the market because tenants will be spoilt for choice.’”

The Malaysian Reserve. “Iskandar Malaysia, the main southern development corridor in Johor, is seeing the formation of a housing bubble as a result of Chinese developers that have been flooding the property market with masses of projects. RHB property analyst Loong Kok Wen said the formation of a bubble could be seen in Iskandar Malaysia.”

“‘We could see a formation of a bubble as property agents are offered 5% to 8% of commission from the usual 2% to sell the property. The ones that are not doing so well are the high-rise properties in which there is oversupply by the Chinese developers, which has led to a supply glut,’ said Loong. Loong, however, cautioned that it is not necessary property prices will fall as the ability of the Chinese developers to hold on to the property will be dependent on their financial strength.”

And from AFP. “Ireland is mounting a spirited fightback from economic collapse but as recovery takes hold, a housing shortage has sparked talk of another dangerous property bubble. Despite almost two years of trying to find a family home with her husband and their young baby, Karen Creed has been unable to find an affordable and suitable property. ‘I’ve witnessed panic bids taking place on a first viewing and I got so caught up in the panic at one point that I was going to put a deposit on a house before I had even seen plans or stepped inside a show house,’ she told AFP.”

The Telegraph. “On a global level, growth is being steadily drowned under a rising tide of debt. The conclusion of the latest ‘Geneva Report,’ an annual assessment informed by a top drawer conference of leading decision makers and economic thinkers of the big challenges facing the global economy, aptly titled ‘Deleveraging? What Deleveraging?,’ points out that far from paying down debt since the financial crisis of 2008/9, the world economy as a whole has in fact geared up even further.”

“Reduced mortgage finance during the banking crisis temporarily succeeded in capping and partially reversing the growth in UK household debt. Yet with a reviving housing market, these reductions may have come to an end. In the meantime, the government has been piling on borrowings like topsy. The UK remains the fourth most highly indebted major economy in the world after Japan, Sweden and Canada, with total non financial debt of 276pc of GDP. The US is not far behind with debt of 264pc of GDP.”

“The real stand-out is China, which since the crisis began has seen debt spiral from a very manageable 140pc of GDP to 220pc and rising. The speed of the increase, combined with the fact that it is largely private sector debt, makes a hard landing virtually inevitable. The only way the world can keep growing, it would appear, is by piling on debt.”

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Bloomberg reports on New York. ‘Sales at One57, the ultra-luxury Manhattan condominium tower that set off a high-end residential construction boom, have slowed to a trickle amid competition from newer properties reaching the market. ‘This is not a normal pace,’ president of New York-based appraiser Miller Samuel Inc., said in an interview. ‘This building had many price increases when it was the only building out there, so maybe they overdid it. In other words, the sky is not the limit.’”

The Virginia Connection. “Many Potomac homes — particularly those selling for more than a million dollars — are remaining on the market for months without so much as an offer — or maybe even a buyer gracing their doors. Some sellers are scared, confused and concerned, wondering why their homes are not selling and trying to decipher what they need to do to make their home more attractive to buyers. Realtors Alison Ross Tompkins cites sellers who ‘came out of the gate earlier this year, and thought this was the year to sell. They put their homes on the market and were overly optimistic, thinking that prices had rebounded. They priced their home too high and as sellers flooded the market, the supply of housing went up – and as the supply increased, the prices went down.’”

The Orlando Sentinel in Florida. “Florida has long led the nation for attracting the greatest share of homebuyers from other regions of the world. Statewide, Canadian buyers commanded 32 percent of the international market. But looking ahead, Canadians’ interest in the Sunshine State may wane now that foreclosure bargains have started to disappear and prices have begun to stabilize. Matthew White, broker associate Sloane Realty LLC of Lake Mary, said he has represented a number of Canadian investors and sees some of them selling properties they purchased during the downturn.”

“‘Those buyers are looking for the kind of prices we had a year ago or two years ago. And those prices don’t exist anymore,’ he said.”

The Las Vegas Sun In Nevada. “Las Vegas homebuilders are stuck in the doldrums as buyers continue to shy away from hefty price tags, according to Las Vegas-based Home Builders Research. President Dennis Smith attributed the decline in permits to processing delays. At least some local builders have slashed prices recently, offered buyers more perks and boosted agents’ sales commissions, so they’d steer clients to construction sites. Brokers, meanwhile, have told Smith that plenty of people are looking at homes but not biting, indicating ‘a healthy dose of price resistance,’ he said.”

The St Louis Post Dispatch in Missouri. “St. Louis real estate agents were hoping for a summer revival in sales and prices, and for a while it appeared as though they might get it. They didn’t. Russ Nolting, CEO at Keller Williams Realty, noticed another phenomenon: Despite the lack of homes on the market, more listings are expiring with no sale, and homes are selling significantly below the original asking price. Nolting suspects those homes were priced too high to begin with. Agents aren’t trying hard enough to dissuade sellers who want to an unrealistic price, he said.”

“‘The desperation of agents to get the listing is causing them to side with the seller rather than side with the data,’ he said.”

The Fresno Bee in California. “A couple years of fast-rising home prices and sales in Fresno and other California cities is showing signs of slowing down and hitting a plateau in 2015, said Leslie Appleton-Young, chief economist for the California Association of Realtors. The overall issue is jobs, Appleton-Young said at a reception at the Fresno Convention & Entertainment Center with members of the Fresno Association of Realtors. ‘If you were to ask me what is the one key variable for kind of gauging the strength of the market going forward, I would say it’s jobs and job creation,’ she said.”

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Here’s the link to the podcast with Jack McCabe. This was recorded on September 17, 2014.

And check out this HBB guest editorial, posted on September 15, 2013.

The Next Real Estate Bubble Is Already Underway

By JACK McCABE

The Sun Sentinel reports from Florida. “Home prices in Broward County increased in August, but sales declined. When the six-year housing meltdown bottomed in late 2011, investors overwhelmed the market, paying cash for fixer-uppers that were resold or rented for robust returns. That led to lightning-quick offers and bidding wars among buyers. Prices and sales shot up, while the supply of homes diminished, creating another mini-boom similar to the one from 2000 to 2005. ‘People were [saying], ‘Here we go again,’ said Jim Heidisch, broker for Campbell and Rosemurgy in Pompano Beach.”

The South Florida Business Journal. “Despite the more than 30,000 new condos proposed or in development in South Florida, the market for existing condos cooled. Miami-Dade County saw median condo and town home prices fall 4.2 percent to $182,000 - a rare reversal, according to the Miami Association of Realtors. The number of sales plummeted 21.4 percent.”

“‘The Miami real estate market continues to normalize as the new construction sector gains momentum and generates strong demand for additional new supply, impacting the existing condominium market,’ Miami Association of Realtors Chairman Liza Mendez said in a news release. ‘Despite declines in sales and condo prices, the performance of the Miami residential market continues to be comparable to what it was in during periods of record sales activity.’”

The Herald Tribune. “While local courts have made headway in clearing out the foreclosure backlog, Sarasota attorney Nancy E. Cason says they still have a long way to go. Cason says it could take another 18 months to process the cases now clogging the 12th Judicial Circuit, which includes Sarasota, Manatee and DeSoto counties. ‘Contrary to popular belief, the foreclosure crisis is far from over in the 12th Judicial Circuit,’ said Cason. ‘At this rate, it will take close to another year and a half, give or take, to clear up the current backlog,’ she said, and only if funding for the new resources is renewed after running out next February.”

“Before the process was sped up, it could take up to three years or longer to move a foreclosure case through the circuit. ‘I am confident those days are over,’ Cason said.”

“Foreclosures showed no sign of easing up in Southwest Florida last month. The Sarasota-Manatee region ranked 19th among the nation’s major metropolitan areas, according to RealtyTrac. Lis pendens filings, the first step in the foreclosure process, jumped 35 percent in August over the month in the two-county region, tracking a statewide trend. After 17 consecutive months of year-over-year decreases, initial foreclosure filings climbed 24 percent statewide from 2013, RealtyTrac said. That kept Florida with the nation’s highest foreclosure rate for the 11th straight month.”

“Money flowing in the court system indirectly from banks is tilting Florida’s judicial system against homeowners who face foreclosure. Judge Diana Lewis told the Sun Sentinel Editorial Board during her re-election bid this summer explained the rocket docket’s pressure this way: ‘We’re under a mandate from the court administration and the Supreme Court to get the older cases out because we might lose funding for that,’ she said.”

“Yet it was maneuvering by banks — including the illegal robo-signing of documents — that helped create the backlog of hundreds of thousands of cases. As Lewis said, ‘The banks then went on the offensive about delaying (foreclosures) and not wanting to take the inventory in. So the court system was obligated to try to do some case management and basically push the cases along.’ She added that, ‘Right now we’re spending the taxpayer dollars’ but ‘we don’t know how long the funding is going to last.’”

The News Press. “August existing-home prices were up, but sales were down in Lee and Collier counties — trends that also showed up in national data. But one real estate agent warned that reports from around the country indicate that the market may be in for a downturn. The falling sales numbers come in part because new-home builders are ramping up production now that the economy’s improving and demand is up, said Naples-based land-use consultant Michael Timmerman. ‘There’s price sensitivity because prices have increased in the last couple of years quite a bit,’ he said, ‘and we’ve got quite a lot of new product that’s not included” from developers putting up new houses.’”

“Denny Grimes of Royal Shell Real Estate, just arriving back in town today from a real estate conference in Austin, Texas, said those trends may be amplified in coming months based on what agents from other markets were saying at the conference. About 75 percent had seen a recent uptick in the inventory of unsold homes, which Grimes said is a leading indicator of trouble ahead because it indicates an increasing difficulty in selling at current prices. If that trend continues, especially in Southwest Florida’s major feeder markets in the Midwest, ‘That may give a seller a cause to say ‘Maybe I’ll wait for the market to get better before I come down’.”

“Much of the decline came from the exodus of investors. Timmerman said investors have pulled back in Southwest Florida as well. Now, with prices on the rise, investors are more cautious — when they do buy, it’s often financed in part by a bank loan. Grimes said his advice to local sellers now is not to tempt fate. ‘If sellers have an option to take good money today, they should take it.’”

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Global News reports on Canada. “It’s no secret that renting or buying a home in Vancouver is extremely unaffordable. The reality is that a lot of homes and condos in Vancouver are purchased, and then sit empty for years. Romy Lindner, owner of rental agency ‘Happily Ever Homes,’ says despite Vancouver’s incredibly low vacancy rates, several downtown neighbourhoods are ‘condo ghost towns.’ ‘Coal Harbour is at about 25 per cent vacancy right now,’ says Lindner. ‘Even when you are driving over the Lions Gate Bridge, you can see lights out all over the place.’”

“Lindner says 48 per cent of investors are foreign, and many owners want to leave the units as-is, not wanting to deal with the hassles of being a landlord. ‘They’re here for about three months out of the year, so it’s just easier to keep them as new,’ she says.”

From Perth Now. “Australians are under more financial stress as the cost of living goes up, and wages don’t rise as much. The level of Dun & Bradstreet’s consumer financial stress index is expected to reach 25.3 points by the end of September. That level is up from 18.4 points in the June quarter and is the second highest level in four-and-a-half years. Personal debt agreements, a precursor to bankruptcy, in Queensland had jumped 33 per cent in the second quarter of the year compared to one year earlier. Personal insolvency activity in Queensland was also the nation’s second highest.”

“Dun & Bradstreet’s director of consumer risk solutions, Steve Brown, said it was well known that Australians carried a large level of personal debt, but most of that was related to investment in housing, which was generally viewed as positive. ‘What’s particularly worrying is that this rising stress is coming at a time when we have very low interest rates and a relatively steady jobs market,’ he said.”

The Straits Times on Singapore. “The property market’s woes have spread from the luxury sector to more modestly priced homes on the city fringe as new loan curbs keep buyers in check. Unsold units are piling up in areas such as Bukit Merah, Kallang and Marine Parade, with developers forced to dangle big discounts to move homes. ‘Developers of suburban condos have not needed to slash prices as most HDB upgraders find launch prices of about SG$1,000 per sq ft (psf) affordable. But developers of RCR non-landed homes have had to cut prices to fit the total debt servicing ratio (TDSR) limits of buyers,’ said R’ST Research director Ong Kah Seng.”

“Alex Residences in Alexandra and Sky Vue in Bishan, which were both launched in the second half of last year, have sold at average prices of SG$1,640 psf and SG$1,576 psf respectively, ‘way below (the prices of units in) the nearby projects launched before them, before TDSR,’ he said. As at the end of last month, Alex Residences had sold 214 of 429 units and Sky Vue 504 of 694.”

The Economic Times on India. “The rapid rise in the stock market since the new government was formed has taken the sheen off real estate, where investments have not only dropped but investors are trying to monetise their existing assets, creating a scare of price correction. Prices of new residential projects in the National Capital Region, for instance, was down 10% in June this year compared to a year ago. In Pune, it was down 25%, while in Bangalore it remained stagnant. Unsold inventory levels at the end of June 2014 stood at 765 million sq ft or about 7.6 lakh apartments, which would take about 35 months to be sold at the current pace of sales.”

“Pankaj Kapoor, managing director of Liases Foras, said the downward pressure on property prices today is pushing investors away from real estate. ‘They see very little hope of a turnaround any time soon.’”

Mingtiandi on China. “94 people were detained in a growing funding scandal involving real estate developers and private lenders in the northern Chinese city of Handan recently as a slowdown in housing sales exposed risky funding practices. A report in the official Xinhua news agency today said that government work teams had been sent in to investigate thirteen local real estate developers in the city in southern Hebei province after a total of thirty-two property firms illegally raised RMB 9.3 billion ($1.5 billion) in funding for new projects in Handan.”

“The fall off in housing demand meant big trouble for Handan Golden Century, which was also the guarantor for a trust product launched during July by Sino Australian ­International Trust Company (SATC), a shadow banking entity which is nearly 20 percent owned by Australia’s Macquarie. Since Handan Golden Century defaulted, there has been a widespread run on private trusts in the city as individual lenders attempted to collect their funds out of the loosely-regulated shadow lenders.”

“A staffer from a trust company who spoke to Xinhua attempted to explain the breakdown in the company’s financing. ‘Starting last year, bank would no longer give us loans. If we could still get bank loans we would not need to turn to personal financing,’ said the employee on condition of anonymity.”