May 8, 2015

The Herd Mentality Will Also Drive The Selling

It’s Friday desk clearing time for this blogger. “Federal Reserve Chair Janet Yellen was right to point out that markets are overvalued, said Yale economics professor, Robert Shiller. ‘It’s part of their job to disturb the tranquility and I praise Janet Yellen for doing that,’ he said in an interview with CNBC’s ‘Squawk on the Street. Shiller said that the Fed was right to go ahead with quantitative easing when it did. ‘Nobody knows for sure because it’s a new experiment, and yes the boom in the housing market and the stock market are partly the Fed’s doing. But on the other hand, we were close to a depression and they had to do something.’”

“Home flipping declined across South Florida in the first quarter, but the region was still among the nation’s most active for home flippers, a new report shows. David Dweck, a private lender and founder of the Boca Real Estate Investment Club, said he turned down two loan requests recently because he was concerned the investors were not making sound purchases. ‘People are starting to pay too much,’ he said.”

“Top analysts say the booming DFW housing market could be too hot. Some worry the lack of inventory in cities like Plano could lead to big trouble. ‘The inventory is so low, it’s driving the prices up,’ says realtor Valerie Kirkpatrick. ‘It’s driving the buyers up, they’re having to pay more and more and more and the houses are not worth what they’re paying.’”

“Kirkpatrick says she’s worried. She’s seeing an influx of cash buyers and she says that pushes price points higher. Too high. ‘It is absolutely scary to me…no matter how much relocating companies we have, we just don’t have enough houses to sell and I fear we are going to end up facing what California faced and Arizona faced when the bottom fell out,’ says Kirkpatrick.”

“A new commentary from David Roberton, the head of equities at Macquarie Securities (NZ), suggests Auckland’s rapid housing bubble may be headed for a bust similar to Toronto’s mid-1980s crash, when downtown real estate prices dropped by as much as 50 percent between 1989 and 1996. The New Zealand Herald quoted Shamubeel Eaqub, New Zealand Institute of Economic Research principal economist. ‘The Auckland housing market is a speculative bubble… and we have no idea what will be the catalyst for a change,’ he said. It will most likely be something external, even a ‘hard landing in China or Australia.’”

“The more staggering number might be this: In April Auckland house prices rose by NZ$918 per day, according to sales data from Barfoot and Thompson, and for the first time the average price in Auckland has topped NZ$800,000.”

“For the first time in many years leading apartment developers have become very nervous about a pending fall in the values of Sydney and Melbourne apartments plus parts of the suburban residential housing market in both cities. In recent months, the actual prices of inner Sydney apartments has started to fall. Yes, fall. No one has heard about falling apartment values in Sydney for a long time. In Sydney, over 80 per cent of inner city apartment buyers are Chinese or Asian investors. In Melbourne’s CBD the figure is even higher.”

“In Melbourne, there is already a big difference between ‘off the plan prices’ and the sale value of completed units. In Sydney, if Chinese buying turned into selling, the market would collapse and that collapse would affect values of a wide range of Sydney residential properties. As we have seen so often in other markets, there is always a danger that the herd mentality that drove the buying will also drive the selling.”

“The departure of some of the real estate industry’s most prominent senior executives in China has deepened concerns as the cyclical downturn unfolds. The widespread worry is that an unprecedented glut in the housing sector, which absorbs 15 per cent of China’s urban jobs, will take about five years to clear and force developers to cut down their headcounts, especially in construction, marketing and sales departments. ‘Traditional project managers are no longer in need,’ said Beijing-based head hunter Carrie Ren, who specialises in the real estate industry.”

“Deep discounts. Free cars and flat TVs. Easy instalments. Nothing seems to have helped the flagging property market in the National Capital Region (NCR) as buyers, suspicious of builders, continue to stay on the sidelines. The result: a pile-up of inventory in India’s largest property market that will take close to 78 months to clear at the current pace of sales.”

“‘The residential market in NCR is not likely to see any momentum for another two years. Confidence in developers is at an all-time low and customers feel projects will not be delivered. There are a number of payment and discount schemes that have been launched by developers, but none of them seems to be working,’ said Rajeev Bairathi, executive director, capital transactions group, at property advisory Knight Frank India.”

“The total number of property transactions in Dubai halved last month compared with a year earlier as the market slowdown continued. According to the latest figures from the Dubai Land Department, the total number of transactions in the emirate plunged 51.8 per cent to 7,311 last month compared with April 2014. The fall in volumes was one factor that prompted the consultancy JLL and the ratings agency Standard & Poor’s to predict that average house prices in the emirate would fall by between 10 and 20 per cent this year.”

“‘These figures come as no surprise although from the face of it they look quite dramatic,’ said Craig Plumb, the head of research at JLL’s Dubai office. ‘A fall in volumes is a good leading indicator that prices will fall and we expect that to continue for the rest of this year. Last April the market was still booming, so any year-on-year figures will reflect that fact.’”

“Expats who make up about 70 percent of the ‘owners’ of a Phuket condominium development that has yet to take shape turned out to join a protest today. The protesters are out of pocket by many millions of baht. Tonny Gao from China, said he and a friend invested four million baht. Didier et Nadine Giesen said that he had used his retirement funds to buy a unit. Australian Paul Schmierer said that he had invested 1.152 million baht. ‘We thought it was good value because of the location, in the heart of Patong,’ he said. ‘Now most of us would just be happy to get our money back.’”

“Laws have been tightened to protect consumers but there’s a glut of condos on Phuket at present, so developers hoping to derive income from quick sales are in some cases struggling. The present condo glut also means that apart from condos in secluded or desirable locations, people who bought condos for investment may not see any appreciation until the glut becomes a shortage.”

“If I were an Australian central banker, politician, bank economist, or even a negatively geared property investor, I’d be telling you Australia has a chronic housing shortage, which is responsible for our sky-high housing prices. But as an independent macro researcher, the data tells me otherwise. In September 2014, Australia had a net cumulative excess supply of at least 165,000 dwellings. This surplus is equivalent to more than one year’s supply at current population growth rates nationwide, and about three years for the most oversupplied state, Victoria.”

“If there were such a dire shortage of housing as the housing cheerleaders suggest, property investors en masse would not be negatively geared in a record low interest rate environment. This tells us leveraged speculation has generated ‘artificial’ demand that has absorbed a wealth of the supply. Sydney and Melbourne are today’s prime examples. Unfortunately, it is only when the tide rolls out that the masses realise no such housing shortage exists.”

“The numerous global housing price booms of the 2000s were written off by government, industry and the economics profession as a failure of inadequate housing supply and a rapidly growing population. The facts later demonstrated these booms were actually gigantic asset bubbles, spectacularly crashing and revealing mass overbuilding. A tiny fraction of the 15,000 professional economists in the United States managed to correctly identify that their housing price boom represented a bubble and was not the result of a dwelling shortage.”

“It is easy to see why Australia’s housing lobby places the blame for high prices on government regulations and dwelling shortages: it’s an easy and a much safer explanation than admitting the real cause to be debt-financed speculation – a bubble.”

Bits Bucket for May 8, 2015

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