February 22, 2015

The Boom Has Created The Conditions For A Bust

It’s Friday desk clearing time for this blogger. “RealtyTrac reported a marked increase in foreclosures locally and statewide in January compared to both a month and year earlier. That sparked blow-back from the local real estate industry and other housing market trackers, including Arizona State University economist Michael Orr. Blomquist talked to the Phoenix Business Journal about the Arizona blow-back and why RealtyTrac’s numbers differ from local sources. He said RealtyTrac compiles data not just from recorded foreclosures but also auction houses and other vendors dealing with home loan defaults. He said there were increases in Arizona foreclosure activity on that front. ‘They would have it before it was recorded,’ Blomquist said.”

“He also said some mortgage industry insiders are seeing more defaults related to second mortgages that may have been interest-only for several years but resetting with larger principal payments. ‘We are confident in it,’ Blomquist said of the foreclosure numbers.”

“The city’s latest idea for breathing life into ‘dead’ properties: Ask a judge to force them to auction. St. Petersburg is banking that it has standing with the court thanks to about $4 million in unpaid assessments and liens on the properties, with individual properties’ tallies often higher than the properties’ worth. As the city slowly shed its foreclosed properties — still between 4,500 and 6,500 at any one time— these speculators are the next target. ‘It’s part of the natural progression of the foreclosure crisis,’ said Matt Weidner, a St. Petersburg lawyer. ‘That’s one of the sort of shocking things,’ that cities got into the habit of not really pursuing these properties.”

“Most cities still are waiting passively for the market to get hot enough that private investors will snatch up dead properties, pay off the liens and build a house. But city officials are tired of waiting. ‘What is the final solution on this? We just can’t go on forever,’ said Todd Yost, the city’s codes compliance assistance director.”

“Connecticut house sales rose the final month of 2014, but 12-month sales wound up slightly below those of the previous year, The Warren Group says. The median price of a single-family home fell 2.1 percent to $240,000 in December, down from $245,000 a year earlier. Year-to-date, the median price for homes sold was $251,500, falling 3.3 percent from $260,000 in the same timeframe last year. ‘Median prices for both decreased but I think that will change in 2015 as we see more and more first time buyers hitting the market and looking for great deals,’ CEO Timothy M. Warren Jr. said.”

“Getting an apartment in Houston is about to get less expensive and that’s good news for renters. But the reason behind the drop is concerning. You’re bound to find large apartment communities, popping up across the Houston metro area and hundreds more are expected to be completed over the next year. And because of that industry analysts expect rent rates to drop and in some cases, it’s already happening.”

“According to Apartment Data Services, there are growing concerns for builders there may not be enough people to fill all of the units being built and that will drive rates down. ‘The recent concern is that the job growth has slipped because of the price of oil and job growth drives demand for apartments. That’s where there is a little anxiety out there,’ said Bruce McClenny with Apartment Data Services.”

“The oil that fueled Calgary’s housing boom has created the conditions for a bust. Genworth MI Canada Inc., the country’s largest non-government mortgage insurer, said last week it’s preparing for more losses this year and into 2016. More than five years of rising oil prices spurred thriving sales of million-dollar trophy homes in Calgary and a doubling of home prices in the last decade. As the oil crash forces energy firms in Alberta to cancel projects and fire workers, housing sales fell the most on record in December and January, with price declines expected to follow.”

“Vince Degiuseppe, a real estate agent in Calgary who sells about 20 homes a year, said demand is falling. Degiuseppe listed a home for a couple for C$500,000 in November amid oil’s slide, and they’ve cut the price several times to C$480,000. At an open house this month, the few offers were all below the listing price. Alberta ‘has gone from the top spot in the economic growth rankings to second from last on the provincial leader board,’ said Derek Burleton, deputy chief economist at Toronto-Dominion Bank, in a note to clients. ‘A significant softening in job markets will set the stage for a second major housing correction in Calgary and Edmonton’ not seen since 2008.”

“Stark reminders keep occurring of just how bad markets have become in mining towns and regional centres with a big reliance on the resources sector. The Hotspotting team came across a local newspaper article which recorded homes for sale as low as $49,000 in Blackwater, a coal-impacted town west of Rockhampton, with an average sale price around $150,000. Early in 2012 Blackwater had a median house price of $360,000, following a 17% rise in the previous 12 months.”

“A few hundred kilometres to the north is Moranbah, the quintessential boom-bust coalmining town. I’ve written about Moranbah’s demise in considerable detail over the past couple of years. Suffice to say that the median house price, once $750,000, is now $285,000 – and the median rental yield, once above 10%, is now 3.65. Experienced property analyst Louis Christopher wrote recently about similar agonies for markets in Western Australia. ‘For the property investors who got caught up in the mining boom, the sting will be very painful. It’s a reminder that if you are buying property, the risks of falling prices are very real if the economic cycle turns - especially in boom and bust mining towns where what goes up, invariably comes down.’”

“You have heard of property developers offering buyers in Dubai everything from furniture vouchers to luxury sedans. Now that trend has started in India as well. To get buyers, Indian developers have unleashed marketing campaigns offering lower home loan rates to free furniture and from cars to free studio apartments. And this is because there is excess inventory with Liases Foras, a property research firm, putting the unsold stock at 832.09 million square feet as of December 2014. And that’s not all, sales for the fourth quarter 2014 declined by eight per cent.”

“‘It’s a buyers’ market now. Expensive homes are not selling,’ Deepakh Parekh, Chairman of HDFC, told the newspaper.”

“China’s real estate industry, thriving just a few years ago, has seen a downward adjustment along with a reduction in end-of-year bonuses and salaries, reports our Chinese-language sister paper Want Daily. According to a report on end-of-year bonuses for 2014-2015, companies in the real estate sector, which previously gave the third highest amount in bonuses, fell to sixth place. This is due to a decline in sales, the accumulation of properties on the market and the collapse of the industry’s capital chain.”

“Not long ago, the real estate industry in mainland China was one of the most profitable for the new class of nouveaux-riches in the country, according to Shanghai’s National Business Daily. According to one employee of a real estate firm, end-of-year bonuses used to be in excess of 100,000 yuan (US$16,000), while a real estate agent at another company said he bought an Audi A6 with his bonus, but that this is no longer the case.”

“For the majority of people in the sector, worse than the reduction in end-of-year bonuses is the cut in salaries after Chinese New Year. A Beijing-based headhunter for the real estate industry said that salaries in the sector are set to plummet in 2015.”

“Jim Gray got his first job in the oil patch in 1956, when oil was trading somewhere south of $5 a barrel. Trained as a geologist, Gray founded Canadian Hunter Exploration in 1973 and built it into one of Canada’s largest natural gas companies. He’s lived through a few of these boom and bust cycles, enough of them to have some perspective on the current collapse.”

“Both the provincial government and many individual Albertans are feeling a little over extended right now. Gray says that’s a hard, but important lesson to learn. ‘For those people who bought big houses or leveraged their personal wealth, I bet that lots of those young people will look back in 20 years and say the life experience they got from this was the best they’ve ever had. We’ve had chequebook public policy in this province and with a lot of our people for too long and this cold shower that we’re having is not all bad.’”

Bits Bucket for February 22, 2015

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