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.”

Bits Bucket for April 24, 2015

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