December 5, 2014

It Appears That The Prices Weren’t Able To Hold

It’s Friday desk clearing time for this blogger. “If you’re interested, even concerned, about the economic outlook for 2015, relax, recommends Sanjay Varshney, El Dorado Hills resident and heavily credentialed economist, academic and financial adviser. With the real estate market cooling off, construction has slowed, too. The Latrobe Road area in El Dorado Hills ‘is on fire right now, with so many new homes going up.’ Folsom is ‘landlocked.’ The city-annexed 3,500 acres south of Highway 50, he said, ‘I’m sure one day will be a reality, but currently we have a lot of planned housing projects already on the books.’”

“‘Right now, I don’t think you can buy land in many parts of Manhattan and Brooklyn at levels that would make economic sense for housing,’ said Jeremy Shell, TF Cornerstone’s head of finance and acquisitions. Mr. Shell said the firm’s goals for 2015 will be ‘disciplined.’ ‘We‘re taking a pass on the high-end condo market right now,’ he said. ‘Some of these super-luxury, over-financed condo projects are the poster child for a boom and bust.’”

“A big jump in listings brought more potential buyers out to northern Virginia’s housing market this summer and fall. The traffic, however, did not translate into a similar jump in sales, and homes are now sitting on the market far longer than they did just one year ago. The problem, ironically, was too few listings at the beginning of the year. ‘We only had a 1.64 month supply of homes in January 2014. This led to a lot of multiple contract situations which drove up prices, and by the time many spring sellers put their homes on the market it appears that the prices weren’t able to hold, which led to higher days on market and increased inventory,’ said Edward Berenbaum, a Realtor in Alexandria, Virginia.”

“The traditional seasonal slowdown in Toronto’s real estate market appears to have arrived a little early this year. Ricky Chadha, with Royal LePage Estate Realty, noticed that listings suddenly dropped off in mid-November. He thinks sellers are trying to time the market more than they did in the past. Some have decided it’s time to cash in and they want to make the most of it. ‘I just feel like people are being too strategic. Everyone’s an expert,’ he says. ‘More often than not, everyone’s second hobby is real estate.’”

“But Mr. Chadha says some of those sellers would be better off listing when no one else does. ‘If everyone’s flooding the market during those peak times, there’s the potential to backfire.’”

“China’s property developers, among the country’s most heavily leveraged companies, will get a negligible lift from the central bank’s first benchmark interest rate cut in two years. ‘From the demand side — the rate cut will not stimulate demand sufficiently for cities that face oversupply,’ said Fitch Ratings analyst Lim Su Aik. He added that lower interest costs would be of only slim benefit to even the most indebted builders. ‘From the borrowers’ perspective, interest expense accounts for only 5 percent of home selling price; the impact from a 40 bps cut will only cut interest expenses by about 6-7 percent, or around 0.3 percent of selling price.”

“It’s a point not lost on apartment hunters like Li, a 37-year-old finance professional who would like a second home in Beijing. ‘Compared with the huge amount for a housing downpayment, what’s the use of the moderate rate cut?’ she said.”

“The glut that characterised high-end property in the nation’s capital, Abuja has continued without any sign of abating. In the midst of this, prices of homes are falling and investors are cashing in on the low prices to purchase homes. Prospective home owners are now prowling housing estates and other sales points, closing deals at prices below market rates. Another reason why property prices are low now is because of the coming general elections. Many politicians are selling off their homes and lands to raise money for their campaigns, so a lot of properties from politicians have come into the market at below market rates, driving prices down. With a seeming glut in properties, even developers have been forced to reduce home prices.”

“There’s an increasing number of forced sales of rural properties on the market in Queensland. Property valuer Herron Todd White spokesman Tim Lane says the market peaked in 2008 and has been on the slide ever since. But Mr Lane says the banks have taken a responsible attitude to the situation. ‘Certainly, there is receivership, mortgage and possession type activity, but in my view the banks have actually managed this position very well. They know if they throw everything out to the market, that doesn’t do anybody any good. They are prepared to work with grazier to effect strategies to exit appropriately. But some are just not in that position, so there are a number of that type of sale.’”

“The Government is eyeing Australian moves against foreign property speculators amid fresh claims they are forcing Kiwi first-home buyers to the sidelines of Auckland’s overheated property market. Labour leader Andrew Little said Barfoot & Thompson’s data showed ‘a major problem’ in the Auckland housing market., a Chinese real estate website which claims to be the biggest one-stop shop for Chinese seeking overseas properties, has 8500 New Zealand listings.”

“Mr Little said first-home buyers, especially in Auckland, were being outbid and out-priced by overseas buyers, ‘people who aren’t even living here but want property here.’ ‘The Government has to do something about it. The Australians have had a look at their programme of putting restrictions on overseas buyers, we should be doing the same thing.’”

“Property investors who leave homes empty just to make money from property price rises could be fined or even jailed under proposals made by a London council. The drastic action has been proposed as the north London borough revealed that 30% of 2,000 homes built in the last six years have nobody on the electoral register and, even when students and foreign tenants are discounted, close to a quarter of homes in five of the newest residential developments appear to be empty. Research consultancy Molior has found that in developments of more than 20 units in London, over 70% of new-build sales in the £1,000-£1,500 per square foot range were to investors, and over 50% in the £700 to £1,000 per square foot range. It said some are ‘held as permanently available hotel suites’ by the owners.”

“‘To people used to property as a speculative asset, this might seem harsh, but if you look at housing as something for people to live in there is no reason not to treat buy-to-leave punitively,’ said Seb Klier, Generation Rent’s policy and campaigns manager. ‘If we are really serious about helping first-time buyers we have to take punitive action against those who see housing as an investment asset only.’”

“A fall in the value of high end housing, particularly in hotspot areas such as Geneva and Zurich, combined with a slowdown of overall price increases across Switzerland could signal the end to a troubling property bubble in the country. The tip of the iceberg began to melt between August and September this year. The cost of buying the most expensive houses Swiss-wide declined nearly 5%, according to property monitoring firm Farhländer Partner. And even modestly priced houses fell in value in Geneva and Zurich. ‘This development is long overdue,’ Fahrländer’s Dominik Matter told ‘Prices have reached such high levels in certain geographic areas and market segments that households simply could no longer afford afford them.’”

“A combination of rock bottom interest rates, rising immigration and the declining performance of other investment classes, such as bonds, saw average property prices escalate by more than a third across Switzerland over the last five years. In Geneva and Zurich the cost of buying a home shot up by as much as 70% in the same period. Whilst property prices are more sustainable in most parts of the country, observers fear a ripple effect across the board if a localised bubble were to burst.”

“Nearly all money is created by commercial banks in the act of lending. They also decide whom to lend it to, and for what purposes. Is this good for the economy? A growing movement is arguing for an alternative. According to Positive Money’s research, in the ten years leading up to the financial crisis, around half of the money created by commercial banks was going directly into mortgage lending - loans to enable people to buy houses or commercial property - and around a third into the financial market, in order to buy existing financial assets, not to make new investments in things like factories.”

“‘All that mortgage lending had the effect of pushing up house prices, and created a lot of instability in the market,’ says Ben Dyson, founder of the UK’s Positive Money, part of a growing international movement pushing for reform to the current monetary system. Mervyn King, who headed the Bank of England for ten years until 2013, has also called for reform of the monetary system, saying that ‘of all the many ways of organizing banking, the worst is the one we have today.’”

“‘What we’re saying is that commercial banks shouldn’t have the ability to create electronic money, the deposits in your account, because they have incentives to lend recklessly. The more they lend, the more interest they can charge. So they over-lend, especially in housing, and create bubbles - debt bubbles and housing price bubbles. We don’t need banks nearly as much as we think we do,’ added Dyson. ‘And if we take the power to create money away from them, we’ll need them even less, because we’ll have a source of money created by public central banks which will come into the economy without debt - without anybody having to borrow it.’”

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