September 21, 2014

Investors Engulfed By The Tidal Wave Of New Supply

It’s Friday desk clearing time for this blogger. “The vacancy rate for single-family homes was 10.7 percent in 2013, up from 10.6 percent in 2012 and near its 2011 peak of 11 percent. That’s far above the vacancy rate during the bubble (8.6 percent in 2005) and before (7.4 percent in 2000). In 2013, household formation was just 321,000, much lower than the 1.2 million baseline implied by current population growth. The number of owner-occupied single-family homes actually fell by 184,000. ”We’re still building single family homes faster than we can fill them,’ argues Trulia’s chief economist Jed Kolko.”

“DR Horton announced it would have to use incentives to sell its homes. It last reported it had 10,000 unsold homes, 3,100 of those already finished. ‘Other builders are sitting on more than that,’ noted Buck Horne, an equities analyst at Raymond James. ‘That’s a lot to be speculating with, especially after the spring selling season.’ As of last quarter, Pulte had less than 1,000 spec homes in all of its combined communities. ‘That’s one the industry’s lowest ratios of spec homes,’ Horne said.”

“There are plenty of vacant homes, no new owner households are being formed, and there’s not enough demand to necessitate building more new homes. Why then do real estate agents claim there is not enough supply to meet demand, and why are home prices continuing to rise?”

“Media reports about rising home prices, strangely enough, are starting to have a dampening effect on the local housing market, said Royal Hartwig, at Keller-Williams Realty’s Palatine office. ‘After hearing these optimistic reports, sellers who have been holding back are deciding that it is time to list their homes. But many times they are expecting to get more money for their homes than the market will currently bear, so the homes are starting to just sit on the market again and inventory is rising,’ Hartwig said.”

“For the second month in a row, the Austin housing market has seen sales on the decline compared to the year-earlier period. Also in August, price dropped for single family houses compared to a year ago. ‘A majority of Austin area homes are now priced out of an affordable range for first-time and first-time, move-up homebuyers where a significant portion of home sales volume occurs,’ said Austin Board of Realtors president Bill Evans.”

“Metro Phoenix’s median home-sales price is poised to dip by $5,000 during September. The dip doesn’t surprise market watchers, who expected it because of steadily falling sales in the Phoenix area. ‘Limbo perfectly describes our current housing market,’ said real estate analyst Tom Ruff of The Information Market, owned by Arizona Regional MLS. ‘Low demand and a lack of new housing inventory have balanced the market into a standstill.’”

“Eileen Rivera, an agent with Keller Williams Realty Los Alamitos, and other experts believe what’s going on now is that banks are starting to release some of the tremendous numbers of foreclosed properties they were so reluctant to release while the market was still down. ‘There’s no question that the big banks held on to inventory and they held back, and they’re releasing some of them now,’ she said. ‘I was dealing with one home the other day that had been foreclosed on 19 months ago.’”

“A home at 2749 San Francisco Ave. in Long Beach can be considered a typical foreclosed home on the market. The 1,176-square-foot home has three bedrooms, two bathrooms and is selling for $369,900. The home, which was built in 1946, was originally priced at $429,000. Rivera said banks only look at the bottom line in the transaction, whereas a homeowner may have trouble letting go of a property for a lower price. ‘It’s the least emotional transaction there is,’ she said.”

“The slide in China’s property market has lasted well into the third quarter and appears to be dragging the broader economy with it. For a Beijing-based trader with a leading global commodities trader, the housing market sell-off means overdue payments from one of her clients, a private chemicals producer which expanded into real estate in 2008. ‘It owes us $600,000 in contract payments but says it can’t pay because of failed property investments by its parent,’ she said. ‘It’s not just us — other suppliers are affected.’”

“The current slide in house prices follows a multi-year boom which lured in companies such as Zhejiang Galico. Around the country, companies which built massive real estate portfolios as part of non-core businesses are now trying to offload them. Li Yonglin, a sales manager with a real estate agency in Wenzhou, said Galico’s case is not unusual as boom turns to bust. ‘Payments collection in property projects has been very slow and that has affected funding flows for the whole group. These are very common cases among small businesses and we’ve even seen some business owners running away,’ he said.”

“The Financial Times writes that the Chinese Communist party is turning to western governments – including Canada – to help in its quest to track down individuals who have moved themselves, and more importantly, their wealth, overseas. A housing analyst based in Vancouver told us that any capital flight might be brought back to China due to capital fright – the fear of losing one’s head for running afoul of the ruling party’s policies. ‘The corruption crackdown could accelerate outflows à la Argentina, or it could cause a repatriation of funds if officials attempt to repay bad debts so as to avoid jail time,’ he said.”

“Investors should sell their residential investments in Singapore. The property market, which has been gradually declining, does not need any new action to tip it over. Just the sheer number of new homes being supplied both in Singapore and Iskandar will drive prices lower. New private home sales in Singapore have plunged in the past three months to about 40 per cent of the monthly average of the past five years or so.”

“In the past six months, there has been an increase in the number of mortgagee home sales. During the luxury property boom from 2006 to 2008, about 60 per cent of top-end apartments were purchased by foreigners. Some have held on to their investments, but they are now feeling stifled. I recommend that investors sell their residential investments before they are engulfed by the tidal wave of new supply.”

“Lower Manhattan’s Trump Soho hotel-condominium tower, which has struggled to find buyers since sales started in 2007, is facing foreclosure. The 391-unit Trump Soho has recorded about 122 completed deals, according to appraiser Miller Samuel Inc. Fifty-eight units are currently listed for sale, with prices ranging between $915,000 for a studio to $50 million for a 10,000-square-foot presidential suite. ‘The challenge of this building is a very high price per square foot paired with extremely high carrying charges related to the hotel services they were trying to market,’ said Jonathan Miller, president of Miller Samuel.”

“Economics columnist Martin Wolf doesn’t want to predict when the world economy will face another financial crisis. But he tells Yahoo Finance editor in chief Aaron Task, more turmoil is ‘more or less inevitable’ because ‘nothing profoundly changed,’ since 2008. ‘Banks have such a powerful interest in finding ways around regulation,’ Wolf says, and they always succeed at it. Wolf fears this is putting us ‘back where we were’ before the crisis happened.”

“So how can the broken system be fixed? Wolf says the first step is to make world economies less dependent on debt. ‘Wolf says radical reform of the financial system is necessary to put the world economy on steady ground. Right now, he says, there is still ‘incentive for the people inside’ to play ‘the leverage game,’ and it’s just too dangerous.”

Bits Bucket for September 21, 2014

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