January 18, 2015

Historical Highs Set For A Multiyear Decline

It’s Friday desk clearing time for this blogger. “According to the Reno/Sparks Association of Realtors Market Report from October, the economic forecast at the residential level is strong for Nevada. ‘From where I stand, we have been recovering now since 2012.’ said Joe Salcedo of Sparks Real Estate’s Chase International. ‘If you bought a piece of property in 2012 you should have a lot of equity. I think the future in Sparks is bright, with government programs that entice buyers to buy … and builders are still building all over the city, which is a great sign. If you really are thinking of buying, you should do it now or else you could be priced out.’”

“Northern Virginia’s housing market followed a national pickup in activity in December, with sales up 10.6 percent from a year ago. And there is now more for potential buyers in the Northern Virginia market to look at, with active listings up 29 percent from a year ago. ‘Our market was swimming along at a record clip until June of 2014. After June, the market came to a grinding halt,’ says Nicholas Lagos, broker-owner of Century 21 Gawen Realty Properties. ‘Properties stayed on the market longer, buyers were less frequent [and] pickier about properties when they saw them.’”

“Southern California’s housing market fizzled in 2014 with sales falling 9 percent from a year earlier and price gains narrowing, CoreLogic DataQuick said. The full year median increased 10.8 percent from 2013 to $410,000. The double-digit year-over-year gain was attributed to larger price increases at the beginning of 2014, said Andrew LePage, data analyst for CoreLogic DataQuick. ‘Prices in a lot of areas have flattened out in the last five months,’ he said.”

“The market showed its sluggish hand early last year. ‘We knew by the time we got to the middle of the year it was going to be a disappointing year with respect to sales, with respect to prices and with respect to new home construction, and all of that played out both locally and nationally,’ said Robert Kleinhenz, chief economist at the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp.”

“Lennar added to the homebuilding gloom Thursday as it became the latest company to warn on lower margins amid rising costs and bigger promotions. Sales incentives also rose to $23,100 per home, or 6.6% of home sales revenue, from $20,600, or 6.3%. ‘Margins in the last two years, especially with Lennar, have appreciated substantially to levels that are at or near historical highs,’ said Jim Krapfel, an equity analyst at Morningstar. He now sees margins set for a ‘multiyear decline to a more normalized level.’ Oil’s collapse is hurting some energy-producing regions. Lennar saw a pullback in upscale home sales in Houston and expects ‘further reconciliation.’”

“There’s a glut of homes on the market in Fort McMurray, which is bad news as oil patch layoffs start to hit. On Tuesday, Suncor announced plans to axe 1,000 jobs as it delays expansion plans at one of its oil-sands projects. While the cuts don’t involve any unionized jobs—yet—Ken Smith, president of Unifor Local 707A, which represents 4,000 Suncor employees, summed up the mood: ‘One thousand jobs, that’s pretty darn significant for any employer,’ Smith said from his office in Fort McMurray. ‘This is not a good omen for Fort McMurray as a whole. We’re going to have rough times ahead. There’s going to be people in limbo. It puts everything up in the air.’”

“Or, as another Fort Mac resident, Debbie March, told the Globe and Mail: ‘It’s like the place has gone dead.’”

“Estate agents expect house prices in London to drop by as much as 5pc this year with the cost of larger family homes falling the most. The report from the Royal Institute of Chartered Surveyors (RICS) has shown that demand for new homes in the capital has continued to weaken, with 45pc more RICS members reporting a decline in new buyer enquiries in December compared with November. ‘There will be a very cautious start to 2015 in the central London property market,’ said one estate agent from Jackson Stops & Staff in Chelsea. ‘Vendors appear reluctant to market their properties in the expectation of having to take significantly lower offers.’”

“Many property market participants remain in denial about the housing oversupply situation. It should be clear by now that the residential property segment is heavily oversupplied. Singapore’s population was about 5.4 million at the end of last June. Taken together, it means that if we simply allowed the current residential projects in the pipeline to be completed, we can already accommodate a population of 6.7 million. And if we take into account the current vacancy of 23,375 private residential and EC units (as at end-September last year), we can just about accommodate the 6.9 million planned for 2030.”

“Sales of properties in regional Western Australia have fallen away sharply with more than one-fifth being sold at a loss. CoreLogic RP Data’s latest report for the September quarter of 2014 showed regional WA had the highest loss rate at 22.5 per cent, with Queensland just behind at 22 per cent and Tasmania at 20 per cent. The company’s senior research analyst Cameron Kusher said a downturn in the mining boom was partly to blame for the poor performance in regional WA and Queensland. ‘Those towns linked directly to the mining and resources sector have slowed very quickly, sales volumes have fallen away sharply, and prices have dropped extremely quickly over the last 12 or 18 months,’ he said.”

“While WA’s capital city Perth enjoyed a relatively low loss rate of 6 per cent in the quarter, Mr Kusher said it would likely become one of the worst performing cities in the country, due to slowing capital growth and easing rental markets. ‘My view would be that over the coming quarter you’ll see that proportion of loss-making sales in Perth start to escalate as well,’ he said. ‘I do think that there’ll be some growing weakness right across Western Australia over the next 12 months.’”

“As creditors circled troubled Chinese property developer Kaisa Group, it’s business as usual at the company’s sales office and housing projects in the southern city of Shenzhen. Nor was there evidence that the company, which could become the first Chinese property company to default on its offshore debt, was slowing down construction work after the sudden departure of a string of senior executives and a missed coupon payment on one of its bonds.”

“The company’s customers though, are starting to worry. People who had bought flats at Kaisa City Plaza called on authorities to protect them in the event the company defaults on its debts and can’t complete the development. ‘We urge the government to protect the rights of the home buyers,’ read rows of blue banners held up by dozens of protesters in the marble lobby of the development. ‘Xi (Jinping), hurting the innocent is infringing upon our bottom line,’ another banner read.”

“One buyer, Fang Shangxiang, said he had pumped 600,000 yuan ($96,863) of his life savings into a 30 percent deposit on a two million yuan flat at the Yuefeng Garden project, one of the developments where sales have been blocked. ‘I don’t think the firm will go bankrupt but there may be a long delay before we get it,’ he said on a visit to Kaisa’s sales office. ‘I thought it wasn’t a bad company. I didn’t expect this to happen … I hope the (Shenzhen) government will do something to protect me and my family.’”

“President Obama’s recent visit to Arizona outlined his decision to spur homeownership by slashing mortgage insurance costs. But housing already enjoys unique benefits. Perhaps this one isn’t needed. You also can question whether such an action should be taken considering that the FHA insurance fund, while improving financially, still backs a lot of poor-quality loans and doesn’t have a sufficient cushion as it is, critics say. And there’s a bigger question: Is another White House initiative needed to enhance the affordability of an asset class that already has been helped by enormous economic tailwinds and receives uniquely good tax treatment?”

“It doesn’t seem likely that $900 a year is going to make that much of a difference in helping people afford an investment that runs a minimum $12,000 to $15,000 a year — once you add up all those homeownership costs including mortgage payments, property taxes, insurance, repairs, utilities, HOA fees, upkeep and more. If all the current goodies aren’t enough to get first-time buyers through the door, maybe they’re not quite ready to own.”

Bits Bucket for January 18, 2015

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