April 17, 2015

A Riskless, Highly Profitable Investment

It’s Friday desk clearing time for this blogger. “Sonoma County home sales remain at their lowest level in seven years, but last month, 613 properties entered the market as new listings, the most for March in five years. Bill Facendini, president and broker for Terra Firma Global Partners in Santa Rosa, said the new listings in March didn’t have much effect on home values in three of the county’s hotter markets: Healdsburg, Sebastopol and west Petaluma. ‘The prices they are achieving are way above where they should be,’ he said.”

“Stephen Liebling, manager of the Coldwell Banker office in Sebastopol, noted that typical tract homes in Sebastopol are selling for $750,000. ‘It’s really crazy,’ he said.”

“Susan Coyle says her Real Estate Two agents can feel it, whether at her original office in Shelton or in Fairfield. Buyers are out in force and sellers appear ready to make a deal, if not quite at the prices they would like. ‘A lot of listings have, all of a sudden, started to come onto the market,’ said Coyle.”

“Across Fairfield County, the average price for a single-family home climbed just 0.6 percent, to $643,000, while the price of the median home sold was off slightly to $394,000. ‘The hardest thing is to explain to the seller that prices have not increased,’ said Coyle. ‘(Homes) are coming on the market, they’re selling; but … the prices have not gone up.’”

“The specter of plunging oil prices hung over Baton Rouge-area real estate market discussions, with predictions that it could lead to a glut of new apartments. In 2015 alone, 1,666 apartment units are expected to be completed. The vacancy rate was 5.5 percent during fall 2014, compared to the national average of 4 percent. Rents have gone up 6 percent since 2010. ‘We could end up with a glut of units,’ said Wesley Moore, with Cook, Moore & Associates. Moore said nearly 6,000 new apartment units are planned in the Capital Region by the end of 2016.”

“Brokers say condo rental rates in Brickell and downtown are largely the same as six months ago and expect they will remain so or even trend down a bit as new units come on line. Jonathan Garcia, broker for ONE Sotheby’s International Realty said the condo market in Miami is strongly linked to foreign demand, with some 80% of the units purchased by foreign investors. He said changes in the currency exchange rate of countries like Brazil, where the currency has dropped 30% since October, will affect Miami.”

“In the next 2½ years, Mr. Garcia said, 40,000 new units will be coming online in South Florida, 20,000 of which will all be in the downtown market at the same time. With so many new units hitting the market at once, said Duff Rubin, senior VP of the Southeast region for Coldwell Banker Residential Brokerage, renters will have that many more choices so prices will have to be more reasonable. ‘Owners saw unrealistic appreciation, which is no longer sustainable,’ he said. ‘Supply has caught up with demand.’”

“Calgary’s resale housing market saw the country’s steepest year-over-year sales decline among major cities last month, says the Canadian Real Estate Association. Meanwhile, property listings continue to rise. More than 5,800 Calgary properties were for sale on MLS listings this week compared to about 3,600 a year ago. Gary MacLean, a realtor with RE/MAX Real Estate Central in Calgary, said the median and average sale prices of single-family homes and condos in Calgary have remained depressed since peaking in March 2014.”

“‘This occurred long before oil prices crashed,’ he said. ‘The thing that is concerning is we are in our peak listing period of April and May and more and more homes will be coming to market in an already overcrowded market place. Sellers must price their homes competitively. If they are the least bit overpriced, they will just sit there.’”

“Before the crash, investors piled into one large apartment block named after Hanover Square in the West End of London. The Dubai development is 15 minutes from a golf course and the sea and half an hour from the busiest international airport in the world. Speculators made a fast buck by selling off-plan properties for a large profit within weeks of their initial investment - with no intention of ever living there. In 2007 investors put down tens of thousands of dollars but have so far received nothing. Linda Mahoney, one of Dubai’s first Western estate agents, described it as a game of musical chairs. ‘It went on and on and on and there was always another place to sit… In June 2008 the music stopped and the chair wasn’t there.’”

“A surge in house prices and sales since 2013 suggests confidence is returning to Dubai’s real estate sector after its disastrous past. Many in the industry do not rule out another bubble forming. Sunil Jaiswal organised the first international property show dedicated to Dubai. He told me that the question he gets asked most in any show is whether the market will crash. ‘Right now the market is quite stable in Dubai. We haven’t seen excessive growth… Will the market crash? Of course it will. Maybe it’s three months away. I don’t know,’ Mr Jaiswal said.”

“Australia will have a housing surplus by 2017, according to one of those who predicted the current surge in housing activity, Goldman Sachs head of macro-research in Australia, Tim Toohey. Price falls are possible. The managing director of property and building forecasters BIS Shrapnel, Robert Mellor, says that in markets with significant excess supply, prices could fall 5 to 10 per cent. It will have a dramatic effect on housing demand, with Goldman Sachs revising an estimated shortage of 140,000 homes in 2017 into a 75,000 surplus.”

“BIS Shrapnel is no longer pointing to undersupply in many metropolitan markets. Brisbane is heading towards balance, Melbourne has a massive inner-city apartment supply pipeline, South Australia is already oversupplied and Perth faces a ‘massive’ population correction. ‘The primary determinant of net migration to Australia is not the number of illegal immigrants or the number of tourist arrivals, it is the relative strength of onshore versus offshore labour markets,’ writes Toohey. ‘Would you move to a country where you can’t get a job?’”

“Land sales revenue in 40 mainland cities plunged 57 per cent last week, with industry experts saying developers could have chosen to stay out of bidding wars at auctions due to a softening market. China Index Academy said there were 4.17 million square metres of land released for sale last week, 70,000 square metres less than the previous week. Twenty-six of the 40 cities it monitored sold no land last week. ‘Big developers have already built up relatively large land banks that are sufficient for development for next several years,’ said Thomas Lam, the head of valuation and consultancy at Knight Frank. ‘In the absence of fierce competition, land being sold for record high prices may not be repeated in coming sales.’”

“‘For some of these governments, income stemming from land sales could be as high as 60 per cent [of the total],’ Lam said. China Index Academy said land sales revenue generated from the sale of residential sites amounted to 3.6 billion yuan last week, down 69.5 per cent from 11.8 billion yuan the previous week.”

“Former Reserve Bank Governor Don Brash says the Government won’t be looking to bring down house prices too quickly because it would see them voted out of office. His comments come as the bank urges the Government to consider a capital gains tax on property to ease housing pressures, particularly in Auckland where the average sale price is now above $750,000 – almost nine times the average annual household income.”

“Dr Brash says ‘bubble’ is an emotive term, but house prices in Auckland have become out of proportion with incomes in recent years. ‘Once this momentum starts, people assume that it will always go on. House prices haven’t fallen for 45 years in New Zealand, people assume they never will fall and therefore this is a riskless, highly profitable investment.’”

“If the Auckland market is a bubble and it bursts, it won’t only be investors that get burned. ‘The one sure thing is if house prices do return to their normal relationship with incomes, the Government’s gone because a whole lot of property owners will be badly hurt by that process. But who knows? We don’t know how it will end, but we do know that we can’t keep on going as we are now.’”

“The regulator of Fannie Mae and Freddie Mac will direct the housing-finance firms to slightly cut mortgage fees for riskier borrowers. To cover the cost of the reductions, Fannie and Freddie will raise fees on some other borrowers, such as those borrowing for an investment property and some of those who have safer borrowing characteristics, with the intent of the changes to be revenue-neutral for Fannie and Freddie, the people said.”

“Separately, the Federal Housing Administration–which insures loans to borrowers who make down payments of as little as 3.5%–in January said it would cut fees by 0.5 percentage point for most borrowers.”

“The FHFA’s latest decision to lower fees for some borrowers is ‘just starting to look like part of a larger trend, that’s my real concern. What’s next?’ said Mark Calabria, director of financial regulation studies at the libertarian Cato Institute. ‘There was not some single moment or event that got us into the last mess, but the accumulation of lots of errors.’”

Bits Bucket for April 17, 2015

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