April 30, 2015

The Ingredients You’d Expect To See In A Bubble

Reuters reports on Canada. “Bank of Canada Governor Stephen Poloz said it was not unusual to see an overvaluation in home prices given the market’s long rally but reiterated the country was not in the midst of a housing bubble. The central bank has estimated the housing market is overvalued by 10 percent to 30 percent. Poloz said that is a by-product of the sector’s strength since the global financial crisis, partly fueled by low interest rates. But Poloz said the sector is not in a bubble, noting that the bank has not seen the highly speculative behavior that is characteristic of such a scenario.”

“‘If we were all buying a second or a third condo with confidence that it was going to rise in price, and sell it to someone else, that would be one of the ingredients you’d expect to see in a true bubble,’ Poloz said. He added that the bank does not see ‘truly runaway pricing’ in the market.”

From CTV News. “A Vancouver home is raising eyebrows for its narrow size and gigantic price tag. The remodelled home in the city’s pricey Point Grey neighbourhood is only 3.6 metres (12 feet)-wide and approximately 945 square feet in size. When Vancouverites were shown a video of the home most agreed that it was quite nice. Their tone quickly changed, however, when they were told that the sellers were listing the home at $1.35 million. ‘And it’s that small? No,’ one woman said, appearing shocked. The narrow Point Grey home sold in just seven days.”

Business in Vancouver. “Pity the owners of multiple homes in Metro Vancouver: it is getting tougher to find conventional residential financing once they own more than five properties in the world’s second-least affordable market. ‘On Monday, another major bank pulled back their policies to only allow for five rental properties maximum, instead of having no limit to the number of rental properties. The move mirrors what most major banks are currently doing right now,’ Vancouver mortgage broker Kyle Green of Mortgage Alliance stated in a memo to clients. ‘It wasn’t too long ago that some of our clients were able to acquire 70 to 90 properties through major banks without too many issues,’ Green told BIV this week.”

From CBC News. “Calgary’s new condominium market has slumped to sales numbers not seen since 2010, a new report says. In the first quarter of 2015, sales totals were down 61 per cent compared to the first quarter of last year, the Altus Group market update says. And so far this year sales are 53 per cent lower than the average over the past five years. One reason sales are down from recent years is that fewer investors are buying condos to rent out. ‘Sales launch activity is substantially weaker than the past few years with investors having effectively exited the market for the time being,’ the report says.”

“The available inventory of new condominium supplies is up to over 2,700 units, the highest level since 2008.”

The Bonnyville Nouvelle. “The cost of a barrel of oil was slashed in half in the fall of 2014 resulting in Alberta’s natural resource sector shedding 20,000 jobs and crippling the provincial economy. The dramatic drop in oil prices had a domino effect on many aspects of the economy with the housing and rental market taking a huge hit. According to local realtor Iris Scherger the housing market hit ‘rock bottom’ in March with the number of houses on the market vastly outnumbering the amount of interested buyers. ‘We have a whole lot more sellers in ratio to buyers,’ said Scherger. ‘The buyers are holding back, they are in fear.’”

“The price of real estate in Bonnyville has dropped about 10 per cent over the last year with the supply outweighing the demand. While the situation here is bleak it isn’t as bad as it is in Cold Lake. ‘In ratio to what Cold Lake has in inventory to buyers they are a lot worse off,’ said Scherger. ‘If they don’t have a pick up in buyers in the next two months, they are going to see a 15 to 18 per cent reduction in price (from last year).’”

“The biggest surprise for Scherger throughout this whole market downturn has been the number of landlords who are selling their rental properties and getting out of the market. ‘I can’t believe how many of the rental properties went on the market; the ones where they have suites or they were accommodating five or six bedrooms for the renters,’ said Scherger. ‘That was a surprise. Landlords are actually selling their rental properties.’”

Bits Bucket for April 30, 2015

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April 29, 2015

Prices Can Even Go Back To Where They Started From

The Wall Street Journal reports on Brazil. “Brazil’s largest mortgage lender has sharply reduced credit for the nation’s home buyers, dealing a blow to the real-estate sector and to Brazil’s struggling economy. State-run Caixa Economica Federal, the bank responsible for about 70% of Brazil’s home mortgages, said late Monday that starting May 4, it will lend only 50% of the value of existing homes, down from 80% previously. After years of strong growth, demand for homes and apartments has fallen sharply as Brazil now teeters on recession. Signs of slowdown already abound. Weak sales and a glut of inventory are weighing on developers’ earnings.”

“São Paulo real-estate broker Adriana Sebastiana da Silva said she has closed just a single sale so far this year. She said Caixa’s pullback will make things worse. ‘There aren’t a lot people with the cash for a 50% down payment,’ Ms. da Silva said. ‘This will hinder the market even more.’”

The Gulf News on Saudi Arabia. “Residential property sales in Saudi Arabia’s capital Riyadh have plunged since the kingdom introduced tougher mortgage rules last November, research from JLL shows, and the consultancy predicted the restrictions would spur further countrywide declines. Buyers can now borrow a maximum 70 per cent of a property’s sale price; previously, there were no sector-wide limits. The restrictions aim to prevent a bubble forming in residential real estate of the kind seen in Dubai several years ago.”

“The number of house sales in Riyadh between the time the new lending limits were introduced and the end of last month fell 70 per cent from a year earlier, JLL wrote in a report this week. The number of apartment sales dropped 33 per cent. ‘Sales are expected to decrease further (due to) the mortgage laws,’ said Jamil Ghaznawi, country head of JLL Saudi Arabia, said in the report. ‘The laws have affected other parts of Saudi, including Jeddah.’”

Livemint on India. “Real estate developers are taking longer to sell luxury apartments, and are holding back on launching new projects in the segment due to weak demand in a subdued property market. In south Mumbai, where most of the city’s luxury and high-end apartment projects are located, the inventory period has risen from 40 months to about 70, experts say. In a desperate attempt to clear inventories, builders are now looking at new ways to attract customers, including offers of discounts. Last year, residential property prices in posh neighbourhoods in the Delhi region are reported to have dropped by about 25-30%, with some builders giving away discounts as high as 40%.”

“‘Six years to clear inventories is an alarming figure. While there is demand, too many projects are competing for it,’ said Ashutosh Limaye, research head, JLL India.”

AsiaOne on Malaysia. “Following a marked slowdown in demand for property in Iskandar Malaysia, property players expect further signs of a slowdown in the second half of the year, when marginal investors begin to take delivery of their units, especially those in the high-rise luxury segment. Johor is expected to face a housing glut, the result of developers launching numerous projects in response to unprecedented demand; Chinese developers, in particular, have been aggressively pumping out units by the thousands.”

“Malaysia Institute of Estate Agents (MIEA) president Siva Shanker said he expects the ‘newly-completed speculative property’ segment to come under pressure this year, with low take-up rates in the secondary market. Johor, being more exposed, could be more affected. The chairman of MIEA’s Johor branch S Vadeveloo added that young Johoreans or those working in Singapore had bought these units in the belief that they could be ‘flipped’ for a fat profit when completed - and this was before last year’s ban of the developer interest bearing scheme.”

Want China Times. “During the recent annual meeting of the International Monetary Fund (IMF) in Washington DC, Zhu Min, IMF vice president, stated that unoccupied houses in China cover land in excess of 1 billion square meters, which poses a risk to the nation’s realty market, according to Beijing-based China Times. A previous study made by Gan Li, professor at the Southwestern University of Finance and Economics, suggests that there are 49 million unoccupied houses in urban areas nationwide, making a hefty unoccupied-housing rate of 22.4%.”

“‘Despite limited demand, many third and fourth-tier cities are laden with huge housing inventories, forming a bubble which may burst, especially in view of the low transaction volume for new houses in these cities’ remarked Zhang Dawei, superintendent of the market research department of Centaline Property.”

Yahoo Singapore. “Recently, there were reports on units in high-end condominium projects being sold at a big loss. As property buyers, we often hear from developers and property agents that property prices will always go up in the long run. Does the property market always manage to recover, with prices going higher than the previous peak?”

“In 2003, I bought a unit in a seafront condominium. When it was under renovation, two neighbors staying at the units above mine dropped by for a chat. They both bought their place first-hand from the developer. ‘Do you mind telling us what price you paid?’ I told them the amount. ‘Oh, that was more or less what we paid for last time.’ ‘Which year did you buy your place?’ ‘It was 1984. Do you know about their launch at that time?’ ‘I don’t know. I was still in primary school in 1984.’”

“I did a search of the old newspapers. I found that the condominium was selling in a depressed market that year. My two neighbors weren’t overpaying at all. It was amazing that, almost twenty years later, despite inflation and after all the ups and downs in the economy, we were back to the launch price! Who said prices can’t go back twenty years? They don’t just go back, they can even go back to where they started from.”

Bits Bucket for April 29, 2015

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April 28, 2015

More Interested In Revenue Than Affordable Housing

Bloomberg reports on Texas. “Millennials overwhelmingly prefer western cities such as Houston and Denver, according to William H. Frey. a demographer at Brookings. The New York City region lost 20,369 millennials from 2010 to 2012, Census Bureau data show. In Austin, millennials have been migrating to the East Side to escape soaring housing prices downtown, displacing black families, said Bo McCarver, board chair of the Blackland Community Development Corporation, which builds low-income housing. ‘We’re inundated with speculators,’ McCarver said. ‘A lot of the new shops aren’t affordable to low-income families.’”

The Tampa Bay Times in Florida. “Under-the-radar rentals have existed in Tampa Bay for decades, but they really started catching fire during Florida’s housing bust. That’s when the practice gained popularity as an income stream for homeowners drowning in mortgage debt. There’s also a proliferation of websites that make it easier than ever to rent out your home for cash. Most violators appearing before the code board say that they had no idea they were doing anything wrong, and that the Realtor who sold them the house told them that they could rent it out weekly. Many of these homes have gone up for sale right after officials summoned their owners to City Hall for a hearing.”

“‘We’ve got a whole lot of people who are trying to skirt the law,’ said Mike Riordon, a member of the code board. ‘The odds of finding people who will rent for a month on a regular basis is not realistic. But the pool of people looking for weekly rentals is huge.’”

The Williston Herald in North Dakota. “Williston has been the fastest growing micropolitan in the country for the past three years, driven largely by the vast reserves of oil trapped in the rocky shale of the Bakken. The slump in oil prices has the energy sector, but a drop from insane growth to only a little bit crazy is something community leaders would welcome. There are 100 new homes, for example, going up north of Williston in spite of the oil price slump, one of many projects still underway. The 100 homes are being built by Mike Dolbec, who says he still sees huge demand for single-family homes. He feels comfortable moving ahead with the investment and doesn’t believe this will be a reprise of the 80s bust.”

“‘I’ve been in North Dakota all my life, so I’ve seen the up and down cycles,’ he said. ‘I don’t think it’s anything like what we’ve faced in the past. There’s too much infrastructure. It’s not going away. Things might slow down for a short period, but I feel it’s going to be crazier than it ever was in a short amount of time.’”

The Arizona Republic. “Some of the 530 property owners in Glendale’s 85302 ZIP code who sold their houses in 2014 may have welcomed a sale price close to what their homes were worth 10 years ago. But that sale price only matches up to the 2004 value on paper. When the effects of inflation are considered, last year’s sellers actually got about 20 percent less for their home. ‘Someone who has seen their income go up 30 to 35 percent won’t find housing more expensive, but those who haven’t seen big income gains will,’ said Mike Orr, director of the Center for Real Estate Theory and Practice at Arizona State University’s W. P. Carey School of Business.”

“Inflation is ‘a factor in individual consumer decision-making. It’s a factor in forecasting. It’s a factor in business planning,’ said Dennis Hoffman, director of the L. William Seidman Research Institute at the W.P. Carey School of Business at Arizona State University. ‘If you’ve got low and falling prices, why buy today when it’s going to be the same or even cheaper next year? So why buy at all? That’s the recipe for a slow economy.’”

The News & Observer in North Carolina. “When Destinee Paez and her husband moved back to the Triangle from Seattle four months ago, they did so in part because they assumed housing would be much more affordable in the Raleigh area. ‘We thought everything would be more affordable. We thought we were going to be able to find a home in the area we really, really were searching for,’ said Paez, 24. ‘The houses here are expensive. They’re nothing compared to when we left three years ago.’”

“That affordable housing hasn’t been a top priority for city officials in recent years isn’t surprising to Lew Schulman, CEO of Builders of Hope, a Raleigh nonprofit that refurbishes homes for low-income families. He said as local governments have emerged from the recession, they have been primarily concerned with raising revenue by broadening the tax base. The federal government, which acquired huge portfolios of distressed real estate when it took over the mortgage giants Fannie Mae and Freddie Mac, has also been focused on getting back the money spent bailing out those entities.”

“‘We really lost a huge opportunity when there was a resetting of market values because the federal government was more interested in recouping revenue than essentially promoting affordable housing,’ Schulman said.”

The Columbus Dispatch in Ohio. “As Ohio spends the last of $570 million in federal money to fight foreclosures, a key question lingers: Did the program work? The program, called the Hardest Hit Fund, helped fewer than half the number the state originally projected and barely made a dent in the foreclosure numbers. ‘It hasn’t worked, and there’s a good reason,’ said Douglas Holtz-Eakin, a former director of the Congressional Budget Offic. ‘Seven billion dollars overall isn’t that much money in a housing market with trillions of dollars in losses.’”

“And, with the program winding down, its most significant potential problem might be emerging: A growing number of homeowners who benefited are slipping into foreclosure as the coverage expires, raising fears that some of the money merely delayed the inevitable.”

“Sandra Mahan, a 73-year-old retired state worker, thought the program would cover the mortgage on her East Side condominium through December of last year, when a car payment expired. Last March, the Hardest Hit Fund spent more than $15,000 to bring Mahan’s mortgage up to date but did not cover her mortgage payments thereafter. Mahan fell behind again and, in December, faced foreclosure on the condo. Although Mahan hopes to work out a settlement with her bank, for now, she said, ‘I’m back where I was.’”

“Almost all homeowners received help in two ways: by having a delinquent mortgage brought into balance and by having a mortgage paid while they searched for a job. Homeowners didn’t see any of the money; it went directly to their banks.”

Bits Bucket for April 28, 2015

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April 27, 2015

Taking Equity To Purchase Investment Properties

The Monterey Herald reports from California. “The number of homes for sale in Monterey County in March hit its second lowest point in 20 years. Scarcity has helped increase the countywide median home price to $515,000. ‘It’s not good for buyers … we were really surprised it became a sellers’ market so quickly,’ said Sandy Haney, CEO of the Monterey County Association of Realtors. Haney said the lack of housing can create anxiety among real estate agents. ‘Realtors get very frustrated for their buyers,’ she said. ‘Now you have buyers who want to get into the housing market but are priced out.’”

The Sacramento Business Journal. “Luxury home sales in the Sacramento region took a 30 percent jump in the first quarter of 2015 compared to a year earlier. The easiest explanation? Look west. ‘I think we’re seeing Bay Area retirees move here,’ said Terri Briggs, regional VP at Coldwell Banker Residential Brokerage in Sacramento. ‘The Bay Area is just really hot.’”

The Calaveras Enterprise. “The housing market in Calaveras County is improving, according to the Calaveras County Association of Realtors. Valerie Moon, administrative manager for the association, said that the booming housing market in the San Francisco Bay Area appears to be finally impacting Calaveras County as Bay Area residents take the equity they have in homes there to purchase investment properties, second homes and vacation homes here. ‘Our second home market is integral to the overall picture of our sales volume,’ Moon said.”

The Daily Press. “Although California rental rate increases continue to lead the nation, the rental market remains affordable in the High Desert Becky Otwell, president of the High Desert Association of Realtors, said the High Desert does not fit into the category of ‘normal or average’ when compared to other locations in California. ‘The High Desert is a different animal when it comes to home prices, including rentals,’ Otwell said. ‘We may have a lot of homes available, but people are still wary of buying versus renting. Rents are low because many people still don’t have money to purchase a home and property owners know it.’”

The Lompoc Record. “When Santa Barbara Realtor JJ Lambert purchased his three-acre ranch property in his hometown of Santa Ynez, he had a plan in mind. List it on Airbnb, and scores of websites just like it, and turn a profit on the property as a vacation rental. But local jurisdictions are taking action against the sharing platform. In the tourism-saturated Santa Ynez Valley, both Buellton and Solvang have imposed strict regulations against hosts like Lambert.”

“‘It’s confusing for somebody selling property here because you can’t represent the fact that you can do a vacation rental, and you know people are intending to do that. It becomes a disclosure issue … and then makes it a very tough selling point. It could hurt property values in the area,’ said Lambert. ‘The only feasible way [to afford the home] was to vacation rent it and use it when it’s vacant. If I’m not renting it, then I’m selling my house.’”

From San Diego News. “Those for and against short term vacation rentals (STVRs) testified April 22 before the city’s Smart Growth and Land Use Committee, which took no action and will continue the hearing on May 29. The committee meeting had to be moved to Council chambers due to the huge crowd that turned out for the contentious issue. Several residents, many along the coast, testified that they were responsible STVR landlords. Many of them noted that was the only way they could continue to own their homes given today’s high cost of living.”

The San Diego Reader. “While local cities continue to seek regulations on short-term vacation rentals, a bill making its way to the state legislature may provide the teeth needed for effective enforcement. In San Diego, an overflow crowd showed up to a city-council committee meeting on Wednesday, April 22, to voice their opinions. Those supporting the rentals said they took care to be conscientious neighbors, and that the income from renting out spare bedrooms or even entire residences allowed them to pay for needed repairs or supplement meager incomes. A La Jolla man said he’d face foreclosure if he was no longer able to rent out a second unit on his property to vacationing tourists.”

The LA Downtown News. “Once again, a new high-rise has been proposed for South Park. Also once again, it marks the revival of a project announced before the recession. Vancouver, Wash.-based developer Holland Partner Group is moving ahead with plans for a 28-story, 341-apartment tower on Ninth Street between Figueroa and Flower streets. The project, originally broached by developer Sonny Astani, would join two existing residential complexes on the block, the 30-story Apex and the seven-story Concerto.”

“Astani had completed the seven-story annex and was in construction on the 30-story tower when the recession hit and he encountered trouble with his lender, Corus Bank. Corus went bankrupt and a heated legal fracas ensued. The parties settled in 2011, but Astani had to give up his stake in the project.”

“The current project has smaller floor plans than originally envisioned. Tom Warren, head of Holland Partner’s Southern California development, said that is a response to slow turnover of the bigger apartments in nearby residential complexes. ‘What we know is that the larger units in [Apex] are struggling. They are still several that are vacant at the top of the tower,’ Warren said.”

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April 26, 2015

Up, Up, And Away

The used house salespeople ponder the housing bubble. “This spring buying season is off to a strong start—in fact, prices are going up faster than they were just a few months ago, according to nearly every recent metric. So does that mean we’re in a bubble? Nope, that’s just what happens when demand increases faster than supply. After all, existing-home sales were up 9% year over year in March, according to the National Association of Realtors®. Inventory is also increasing, but not as fast as sales, resulting in a tight supply getting even tighter.”

From Morningstar. “The other big news this week was that U.S. housing data, though not fantastic, appears to indicate that the U.S. housing industry has established a bottom. Early spring shoots are clearly beginning to turn into new blossoms, especially in the new home sector. Don’t be fooled by some flaky month-to-month data points; the pattern in the yearly statistics appears to be moving up, up, and away for now.”

News 4 Jax in Florida. “Homes in Northeast Florida are going so quickly, sometimes they don’t last for even a day on the market. Realtors say it’s a seller’s market in Northeast Florida and prices are rising. ‘What’s also bringing more buyers are the rates out there right now,’ Slate said. Those low rates have people wanting to invest. ‘More people are thinking, ‘Why are we renting right now? Why are we paying someone else’s bills?’ Slate said. ‘After a little down payment, they can pay their own bills and investment.’”

CBS 58 in Wisconsin. “Spring time means the ‘for sale signs’ are going up and broker Lisa Ashley says the housing market is soaring. Ashley says, ‘Things were really booming last year, but this year things are exponentially busier than last year.’ Ashley says, ‘Along the north shore in Milwaukee, and in Shorewood, Whitefish Bay, Fox Point, all those areas have a ton of activity.’”

“It’s keeping Lisa busy, and sellers getting a better deal than they bargained for. ‘Some properties with the agents in my office are getting multiple offers and getting over asking price depending on what they look like.’”

From Bloomberg. “As U.S. commercial-property values surge to records, led by gains in large cities such as New York and San Francisco, some segments of the Manhattan market may be getting overheated, the executives said. Skyrocketing prices for New York’s best buildings are the biggest impediment for foreign buyers seeking commercial-property deals in the city, said Extell Development Co. President Gary Barnett. The Chinese are wary of repeating the mistakes Japanese investors made in the 1980s when they bought at the top of the market and took huge losses in the following decade, he said.”

“‘Today’s markets are frothy and everybody knows that,’ Barnett said. ‘The bottom line is it’s very very hard to find really good deals today in New York City or in any of the trophy locations in the world. In order for them to come in, they’re going to have to join the crowd and pay up.’”

From Fox Business. “In the past two decades alone investors’ fortunes have risen and fallen with the technology bubble of the late 1990s and the far-more encompassing housing bubble of the 2000s. In both of those latter cases, the U.S. Federal Reserve played a key role both in fostering the economic environment (mostly by keeping interest rates low) that initiated the bubble and in assuring investors and other market participants that everything was copacetic.”

“Lance Roberts, chief strategist at STA Wealth Management, said financial bubble cycles have become self-perpetuating in the last two decades as the Fed has ‘manipulated’ monetary policy in response to a crisis only to create conditions conducive to another bubble, which sets the cycle in motion again.”

“Enter the Fed again with more low interest rates to offset a recession combined with lax lending standards and government policies hell bent on promoting home ownership and the result is the 2008 financial crisis. Here comes the Fed again, this time with the lowest interest rates since the Fed started dictating such things and an extraordinary and unprecedented stimulus program known as quantitative easing in which the Fed purchased trillions of dollars of U.S. Treasuries to pump liquidity into U.S. financial markets.”

“Central bankers are hardly ignorant of the risks associated with their policies, be they low interest rates, an untested bond-buying program or a hard lean toward greater transparency. ‘The Fed is resigned to the fact that the low interest rates are a necessary evil. The consequences of a bubble are much less than the consequences of low growth and economic stagnation,’ said Mark Williams, a former Fed examiner who now teaches banking at Boston University.”

“While stock and bond prices may be elevated, low interest rates and the Fed’s array of other measures initiated in the wake of the financial crisis seven years ago have promoted economic growth and prevented the U.S. from slipping into another depression. ‘It seems to me the tradeoff has been worth it,’ Williams said. ‘So far it appears this gamble has paid off.’”

From David Stockman. “Zero Hedge recently revealed that $5.3 trillion of government debt trades at subzero interest rates. In today’s fiscally profligate world that is a thundering tell There are no markets left in any meaningful sense of the word- just a raging casino infected with the madness of the crowds and the central bank pied pipers who mesmerize them. Every day there are new confirmations of the mania.”

“Over the past two decades the People’s Printing Press of China issued virtually unlimited bank reserves in the process of buying up dollars to peg the RMB exchange rate in support of its national policy of export mercantilism. This, in turn, has enabled China’s total public and private credit outstanding to soar from $2 trillion at the turn of the century to $28 trillion today.’

“Needless to say, there is a huge problem when you turn rebar, concrete and wallboard into tulip bulbs. Namely, when the price mania finally stops not only do the speculators who put their savings into empty apartment units get crushed, but, more importantly, demand for new units quickly evaporates, causing an devastating contraction up and down the building supply chain.”

“There is no better measure of the true contraction underway in China than the price of iron ore. The Wall Street stock peddlers will tell you not to be troubled by the 70% plunge from the 2012 highs and the 35% drop just in the last nine months. According to them, its all the fault of the big global miners who went overboard opening up massive new iron ore pits and mining infrastructure.”

“And it is true that cheap debt and roaring stock markets encouraged the likes of BHP, Rio Tinto and Vale to go on a capital spending orgy that is unprecedented. The Big Three alone have added more new iron ore capacity in the last six years than even existed at the turn of the century. Yet this wasn’t an aberration or a case of one-off exuberance. The over-investment in iron ore capacity was just a mirror image of the same massive over-investment in the waterborne iron ore industry’s principal customer. That is, the Big Three miners were only attempting to stay abreast of the massive over-investment in the steel-making, steel-fabricating and steel-based construction sectors in China.”

“So the collapse in iron ore prices is just the whip-end of a deflationary crisis that is fast overtaking China and the entire world economy for that matter. But in a mania there is no way of telling sundown from sunrise. In fact, the fast money gamblers feast on sundown economics because the latter is precisely the mechanism by which cash is cycled back into the casino. So today’s action in the Red Chips and the Big Macs was not about price discovery; it was just the mania bubbling higher yet again.”

Bits Bucket for April 26, 2015

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April 25, 2015

Bits Bucket for April 25, 2015

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April 24, 2015

Concerned About Their Ability To Get Top-Dollar

It’s Friday desk clearing time for this blogger. “When discussing Wednesday’s news that existing home sales climbed in March, National Association of Realtors chief economist Lawrence Yun said the 7.8% yearly rise in March’s median price was unsustainable. ‘This price gain of near 8% is not healthy, considering people’s incomes are only rising by 2%,’ said Mr. Yun.”

“An InvestigateWest analysis shows Portland’s affordability also is being pressured by investors so bullish on this city’s single-family housing they’ve bought properties by the dozen on the heels of the recession, driving up prices and rents as they go. Across much of Portland, prices seem high, said Steve Wilson, a former project manager for multifamily remodels who has flipped homes since launching the company during the crisis.”

“Perhaps ominously, Wilson says he feels an echo of 2006 in today’s marketplace: Buyers are overpaying. Sellers want top dollar for houses that need work. And developers and remodelers are pushing prices up to $600,000 to make profits. ‘I think they’re pushing it to where we’re going to have another crash,’ Wilson said.”

“According to a Fannie Mae consumer attitudes survey, 46% of consumers think now ‘is a good time to sell’ a home — a 6-tick increase from the month prior and the highest recorded measure since Fannie Mae began tracking such data. When sellers start believing that ‘it’s a good time to sell,’ they typically believe that housing is reaching — or falling from — a peak. Falling confidence suggests that sellers are concerned about their future ability to get top-dollar which can result in home getting listed for cheaper prices.”

“Nearly three-quarters of the homes on the market are “stale,” which is to say that they have sat on the market for more than a month with little to no interest from buyers, according to from Redfin. Even in the most sought-after neighborhoods, some houses sit. In the Chevy Chase, neighborhood of Washington, D.C. one home there has been on the market since the end of February. ‘Everyone loves it; it’s the price,’ said Ghada Barakat, the Long and Foster listing agent for the property.”

“Buyer psychology and suspicion are in full swing. ‘The trust is broken among buyers. In Denver and Silicon Valley, if the house has been on the market for two weeks, there is something wrong with it,’ noted Nela Richardson, Redfin’s chief economist. ‘Everyone is afraid to overpay, and the herd behavior in the stock market is something we’re now seeing in the housing market.’”

“This year’s brutal winter seems to have landed a punch to downtown Boston’s condominium market. Condo sales for the first three months of this year plummeted 17 percent, with 495 properties sold, down from 597 the same time last year. The median selling price also slipped for the first time since 2009 to $630,000, from $660,000 last year, according to LINK, a real estate tracking firm. Debra Blair, the president of LINK, said the supply of condos on the market has become extremely tight. ‘We have no inventory in the city,’ she said.”

“An Asian radio advert is boasting that property investors can get New Zealanders to ‘go to work for you and give you hundreds of dollars a week’ in rent in Auckland’s overheated property market. The advert, aired on Singaporean radio, sells Auckland as ‘an investors’ dream’ with no land tax, stamp duty or capital gains tax. It starts by asking listeners: ‘How would you like people in New Zealand to give you around half their weekly wages? New apartments in the centre of Auckland can be purchased for as little as $390,000 — that’s right $390,000. And with as little as $2000 initial deposit you can secure one today for yourself as an investment.’”

“News of the advert has prompted opposition parties to hit out at the Government, blasting an unregulated property market for creating an ‘open invitation to the world’s property speculators.’”

“Concerns over a housing glut in Iskandar have been aggravated by new figures from the Malaysian government. It said the total number of homes in Johor state will surge by more than 335,000, or 46.7 per cent, over the next few years. The finding will only add to concerns of an oversupply in the state, which is favoured by some Singaporeans looking for a second home.”

“Maybank warned in a report last week of mounting risks to Iskandar’s already-weak property market. It said the ‘aggressive land-banking activities’ of Chinese developers in the ‘already crowded’ Malaysian development zone could make matters worse. And there is more to worry about: The National Property Information Centre said that at the end of last year, of the 13,690 housing units launched in Johor, 26 per cent, or 3,572 units, remained unsold.”

“As China’s housing market faces a sharp drop in sales, investors and credit rating agencies face an uphill task trying to calculate how much debt the country’s property developers actually hold. Unless a company holds a controlling interest in a joint venture, it can keep details of a joint venture and the debt it takes on off its balance sheet - recording instead just the amount of equity it has invested in the project. The practice is raising eyebrows now among investors trying to assess a company’s credit risk, as they worry they may have underestimated the scale of developers’ off-balance sheet debt just as China’s economic growth is slowing.”

“The shake-up of Hong Kong tycoon Li Ka Shing’s business empire provides one example of the scale of off-balance sheet joint venture debt. A new company created to hold Li’s group’s property interests - Cheung Kong Property Holdings Ltd - says in a stock exchange filing that its adjusted borrowings at the end of 2014 would have been HK$16.8 billion ($2.17 billion). That’s 11 times higher than the combined debt of HK$1.4 billion reported by the property groups of Cheung Kong and Hutchison Whampoa, even though Cheung Kong Property Holdings’ business was split between those two companies at the time.”

“Even for a country with a history of commodity booms, this one was gargantuan. Over the decade to 2013, Australia racked up $1 trillion in extra exports from the previous 10 years, thanks largely to China’s once-insatiable demand. Despite the opportunity of funding infrastructure to meet the needs of millions of new citizens, the nation largely blew the extra cash on month-to-month spending.”

“Much of Australia’s household wealth is tied up in a A$1.9 trillion private pension system, the world’s fourth largest, and a national housing market now valued at A$5.7 trillion. Yet households also carry a debt burden of 153.8 percent of income, the highest on record, and the government is struggling to restore the fiscal position as commodity prices slump and the tax system leaks.”

“After 24 years of growth, the question is whether Australia has had it too good for too long? In 1986, then-Treasurer Keating warned it was headed toward being a ‘Banana Republic,’ a statement that galvanized the country to reform. That effort prompted The Economist magazine to summarize: ‘If you look at history, Australia is one of the best managers of adversity the world has seen — and the worst manager of prosperity.’”

“Exceptional growth has been the storyline of the luxury real estate market the past few years. No other price segment has rebounded from the housing crash with as much gusto as that of million-dollar-plus homes, which are selling at twice the historical average. According to the National Association of REALTORS®, home sales above $1 million in 2014 grew nearly 9 percent over 2013 — more than double any other price point.”

“Nearly every major city — if not all of them — shattered its record for most expensive residential sale in the last year, and each one has a listing today that, if purchased at asking price, would break it again. But underneath that fanfare appears to be a little bit of nervousness that only a few will openly — or even hesitantly — admit. Is the upward trajectory of high-end sales and prices rising too fast?”

“Economists started to say last year that the potential for another housing bubble was present, but no one would go so far as to say it was actually happening. No one can say that now, either, but it’s worth noting that eerie signs — whether it speaks to a bubble or not — are popping up. And they’re starting to be acknowledged by some in the real estate community.”