December 11, 2014

An Illusion of Liquidity

The Calgary Sun reports from Canada. “The oil price crash is helping whip up a perfect storm that’ll dramatically devalue Calgary’s housing prices, a senior real estate analyst said. Ross Kay said an already wilting housing scenario will be further undermined by what’s expected to be a protracted oil price slump. ‘Where there’s a perfect storm, I hate to say it, it’s Calgary right now,’ he said. ‘Calgary’s going to be worse than anywhere in Canada.’

“He made the comments the same day a Bank of Canada report stated housing prices in Canada were overvalued by up to 30%. Kay said the turnaround in its fortunes began last July and showed up in earnest last week, while home buyers were still falsely pinning their hopes on an appreciating asset. ‘The contractions are hitting at a time when you’ve got these other issues on board and there’s no way for that to be reversed,’ he said, adding buyers have been overpaying for homes sure to lose value. ‘In the next 12 months, you’re going to lose a lot of realtors.’”

The CBC in Canada. “A realty analyst is urging caution to Calgarians who are thinking about putting their homes on the market. Ross Kay said the market is already shifting and it might be wise for homeowners to hold off listing their properties. He said the numbers show many people who have bought a new home have not been able to sell their old one. Any time oil prices fall there are other adjustments on the economy, said ATB Financial chief economist Todd Hirsch. ‘There could well be individuals in Calgary in 2015 who find themselves with a house valued at less than what they paid for,’ he said.”

Mondo Visione on Russia. “Russia consumer sentiment fell to the lowest level on record in November as stubbornly high inflation put extreme pressure on household finances while confidence in the real estate market collapsed to a record low. The housing market was also hit hard in November as weakness in overall consumer sentiment coupled with the high level of interest rates reduced respondents’ willingness to purchase a house to the lowest level on record.”

“Commenting on the latest survey, Philip Uglow, Chief Economist of MNI Indicators said, ‘Things went from bad-to-worse in November with sentiment falling sharply to an all-time low as respondents became increasingly concerned about their household finances, business conditions and the housing market. The slide in the price of oil and significant weakening in the rouble suggest confidence could fall even further over the coming months. Moreover, it is becoming more likely that the Bank of Russia will have little option but to tighten monetary policy further, causing additional pain to an economy on the brink of collapse.’”

The Arab News on Saudi Arabia. “The sharp drop in oil prices across global markets has caused panic among contractors in the Kingdom fearing the negative impact on the government’s financial budget. The Kingdom’s vast construction market is being driven by increased government spending, which depends on high oil prices, according to a Global Investment House report. ‘It is important for the government to have enough oil-based income to finance the mega infrastructural projects currently under way and in various stages of completion,’ said Farouq Al-Khateeb, an economics professor at King Abdul Aziz University.”

“He added that the growing Saudi population was creating pressure on the government to meet their needs through spending on various projects, especially the housing sector. ‘Most construction firms do not have precautionary measures or a safety net to deal with low finances in the backdrop of the spiraling oil prices,’ Mustafa Al-Shalwai, CEO of Al-Monsour Group for construction and Development said.”

From WDAZ in North Dakota. “Falling oil prices are on the minds of many in North Dakota, where the industry has brought unprecedented wealth and state revenue. Ron Ness, president of the North Dakota Petroleum Council, said companies are already trying to lower their operating costs. He said there could be an impact on oil exploration. ‘If you’ve drilled a well, you’ve put your money into that well already and you’re going to produce it,’ he said.”

“Ness hopes that wider effects on infrastructure investment in North Dakota that has been made possible by the energy boom can be avoided. ‘We have, after many, many years, been able to attract investors into infrastructure and to build housing,’ Ness said.”

The Houston Chronicle in Texas. “In The Woodlands, one of the hottest markets thanks to the construction of a massive Exxon Mobil campus expected to bring upward of 10,000 workers, activity could be much more moderate next spring than in 2014. Beth Ferester, a real estate agent with Coldwell Banker United, Realtors there, recalls the ‘panic buying’ earlier this year when buyers frequently paid more than the asking price and some committed to houses sight unseen.”

“‘I just think that we all need to look at this upcoming market as being a little more tentative than it was last year and watch our prices and don’t get too confident about these over-market prices coming in this year,’ Ferester said.”

“Talk of a looming downturn surprised one local couple who just sold their house on the east side and bought a recently remodeled mid-century modern that sits on nearly an acre in Glenbrook Valley. Matt Fugate said it’s hard for him to imagine the market falling. He and his partner bought their new house in a private sale and the one they sold went quickly. ‘Quality homes aren’t staying on the market very long,’ Fugate said, ‘and homes ripe to remodel and flip are being snatched up just as quickly.’”

From Forbes. “Portfolio manager Thomas Atteberry hates losing money. ‘I lost $50,000 on the first house I ever owned,’ he laments. That was in Dallas in the 1980s, when oil dropped to $10 a barrel from $32 and the housing market crashed.”

“FPA New Income has missed the huge rally in junk bonds since 2009, the primary reason it returned just 2.9% that year compared to 19% for the average fund in its category. But missing bubbly rallies is par for the course for New Income and a big reason why it is considered one of the lowest-risk bond funds around. As profitmaking parties spring up along the fixed-income landscape, FPA sticks to its knitting.”

“As for safe-haven Treasurys, Atteberry doesn’t consider them safe at all. For him the pitiful yields available are a no-fly zone for his fund. He also refuses to make a directional bet on rates. It’s all about avoiding the crowd and buying assets at a discount, especially when sellers are running for the exits. Cautions Atteberry, ‘There is an illusion of liquidity out there. It’s making things look more attractive than they really are.’”

Bits Bucket for December 11, 2014

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