February 13, 2015

Investors Have Had Their Fingers Burnt

It’s Friday desk clearing time for this blogger. “Houston’s booming housing market is losing some of its momentum due to the steep decline in oil prices in recent months. A further slowdown appears to be on the horizon. The Houston Realtors group said sales of houses priced at $500,000 or more slowed significantly in January. Amy McGee, an agent with Coldwell Banker United Realtors in Houston, said the market has gone from being white hot to a mixed bag. One of her clients, 24 year old Robert Nolt, says he has permanently shelved his home search in Houston. He had put a contract on a three-bedroom home in Houston for $340,000 in December, but cancelled it that same month due to his concerns about job stability.”

“Mr. Nolt said his company has idled some boat crews and enacted pay cuts. His pay was cut 25%, he said. Rather than buy a home in Houston now, he’ll continue to stay with his parents in Pennsylvania. ‘I’m out of the hunt indefinitely,’ he said.”

“East Boston is definitely changing. But then along comes a sale like this one for Unit 447 in the perennially popular Porter 156 lofts to make us doubt the entire trend. The 3-BR, 2-BA, 1,389-square-foot condo with private terrace (and the rights to build a private roof deck) dropped on the sales market in September for a cool $699,000. The tag then declined steadily from there, until the spread traded late last week. After chopping its price to $599,000 in mid-December, Unit 447 closed on Feb. 6 for $575,000. Not everything in the Hub is going for way over asking.”

“In New Jersey, bank repossessions were up 116 percent in January, marking a 51-month high. ‘It’s getting worse rather than better, although for the most part, there are some exceptions in some of the New Jersey markets that are struggling economically,’ said Daren Blomquist, VP of RealtyTrac. ‘It was the highest level we’ve seen since back in October of 2010. What this also tells me is that there is more of this coming. There is also a big jump in New Jersey in these scheduled auctions, the foreclosure auctions and sheriff’s sales. That tells me that we are not through this, this is going to continue.’”

“Foreclosure activity in San Joaquin County rebounded sharply in January and is partly a reflection of a nationwide trend of a ’spring cleaning’ by lenders moving to clear problem mortgages from their books, RealtyTrac Inc. reported. Also, the bounce in home and condominium repossessions might be related to California’s Homeowners Bill of Rights. That legislation took effect at the start of 2014 and created additional delays in the foreclosure process, even as it gave mortgage holders more opportunities to keep their homes. The January rise was the first year-over-year increase in San Joaquin County repossessions following 37 consecutive months of decreases.”

“Canadian home prices have started to trend downwards in several major Canadian cities, including Montreal, Winnipeg, Calgary and Hamilton, Ont. Hamilton, which has been one of the country’s hottest markets for two years, saw prices rise 7.2 per cent since last year, but fall by 0.3 per cent in January. Other markets are well into a downswing in prices. Teranet National Bank analysts said the price behaviour in Ottawa, Montreal, Quebec City and Halifax was ‘consistent with buyer’s-market conditions.’”

“London house prices declined for the fifth month in a row in January and are forecast to keep on falling by surveyors and estate agents. One London agent, John J. King, of Andrew Scott Robertson, in Merton said: ‘A testing period between now and Easter. Vendors undecided, purchasers testing the market with offers well below asking prices. If upsizing, a good time to buy.’ His comments were echoed in the report by Christopher Green, of Curzon Land, who said: ‘I have found some sellers who will take substantial (20%) discount from advertised price.’”

“It’s not just billionaires who have seen their wealth crimped by the falling iron ore price. More modest investors who were advised to sink their money into property in booming mining towns have also had their fingers burnt. Prices in the mining regions of Western Australia are already falling and the fall in commodity prices and mining slowdown is significantly impacting on Perth and Darwin prices too. SQM Research data shows that the asking price for three-bedroom houses in Port Hedland is just over $800,000 compared with $1.3 million in 2012.”

“In Karratha, another Pilbara town, the story is similar. Asking prices for three-bedroom houses have plunged 40 per cent over the past three years, to $457,000. Some property experts recommended city investors buy houses in mining towns. Investors who bought at the top of the market have been burnt. ‘The reason for the oversupply is that you have sellers coming onto the market who are not absorbed by the buyers – so the listings increase as new listings come on,’ says Louis Christopher, of specialist property researcher SQM Research.”

“A Manhattan replica in China, complete with knock-offs of Rockefeller Center and the Hudson River, is missing that one key element that makes New York, New York: the people. The business district of Tianjin, China was billed as the world’s largest financial sector in the making when construction began on the 10-year project more than five years ago. Now, construction has all but stopped and builders have left town, leaving behind empty buildings and streets. The $50-billion project is heavily in debt and will likely remain half-completed and abandoned in a sign of China’s economic slowdown.”

“And the slowing Chinese economy will be felt the world over, including Canada, as demand for oil and other commodities drops. ‘If China’s economy continues to slow down, I think it will have a very big impact for Canada, for many African countries, and for many countries in Latin America,’ Rao Tan of Beijing’s Renmin University told CTV.”

“A leading member of the country’s economic watchdog has told how he agonises over his own personal failure to foresee the economic collapse. Prof FitzGerald said if he had properly scrutinised the balance sheets he would have determined that the banks were in trouble. ‘Not seeing the unsound nature of the banking sector was a bad mistake,’ he said, adding that he will feel regrets ‘until the day I die.’”

“He had written to the regulator twice in the first quarter of 2006 expressing his concerns about the economy’s potential exposure. His worry stemmed from knowledge about a number of Irish investors who wanted to invest large amounts of money in Poland. He described how he became suspicious as one Irish bank had a branch in Poland where investors had ‘leveraged’ large amounts of money for their investment. The banking crash, he felt, could have been prevented by prudent fiscal policy and prudent policy by the central bank.”

“The property bubble got out of control between 2003 and 2007 and became ‘a tumour which grew and grew and squeezed the rest of the economy,’ he stressed. The number of houses being built was running ahead of the population and people expected house prices to rise in the future, which made buying better than renting. This all led to the bubble. Prof FitzGerald said it was impossible to identify when the bubble became irreversible and when a collapse became inevitable. At the time, however, ‘the people of Ireland did not want to change.’ ‘The information was out there. You couldn’t miss what we were saying,’ he claimed.”

“Over the past 40 years Auckland has become a world-class city. But what will happen in the future? No one knows, today, but after two months living in Auckland, talking to people everywhere and following the local media, I have an overwhelming impression that you are living in a ‘bubble’ of inflated housing prices and affluent lifestyles. This bubble is based largely on credit and confidence that the good times will continue. It supports a new affluent lifestyle: fancy homes, flash cars, fine dining and having fun. Nearly everyone is involved, directly or indirectly.”

“In many respects, housing is special: the basis of a middle-class society. It is a major sector of the economy providing jobs and represents the main asset of most families. Today things are very different. Housing has become a financial investment and personal statement of social status and lifestyle. Everyone talks about real estate: the media pump it with news about record prices and advertising with alluring stories and pictures. Owners don’t buy houses just to live in but to appreciate in value. And banks now invest most of their money in mortgages rather than more productive small businesses loans. They all hope for (and require) the bubble to keep growing.”

“Some people say this is just the free market acting naturally and that it will adjust itself in the future. But others doubt this and worry about the human consequences. History is full of stories about bubbles that ended unhappily. If you agree Auckland’s property values and affluent lifestyle are inflated, housing is important and your natural attractions and suburban lifestyle are unique, then focus on deflating your property values/lifestyle and making Auckland a more affordable, liveable, cosmopolitan ’suburban centre in the sun’ for everyone.”

Bits Bucket for February 13, 2015

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