May 31, 2015

From White To Merely Red Hot

A weekend topic on commodities and the housing bubble. The Williston Herald in North Dakota. “An onslaught of housing is set to hit the booming Williston housing market with more than 2,126 units coming online this year. Amid that crush, the principal investors behind Eagle Crest Apartments are hoping to make not just an entrance, but a grand one. For their opening ceremonies, a professional jazz ensemble being flown in from Seattle performs, and organizers are bringing in vintage automobiles and tractors from a couple of car clubs in Canada. They’re also offering free burgers to what they hope will be 2,000 participants each day. John Sessions, one of the Eagle Crest principals, said the housing market has continued to be strong for multi-family dwellings and single-family homes, despite the downturn in oil prices.”

“‘We get calls all the time about how things are going,’ he said. ‘If this is a bust, I’m not sure we could survive a boom. I’m exhausted as it is.’ While acknowledging the pain for oil-related workers who have been laid off, Sessions said the downturn has allowed some catchup work for others. ‘We’ve gone from white to merely red hot,’ he said.”

The Oklahoman. “We’re No. 15! We’re No. 15! Not No. 1. But coming in 15th among the states when it comes to house price appreciation is nothing to sneeze at. That’s where Oklahoma ended the first quarter, according to the Federal Housing Finance Agency, when considering home purchases only, not mortgage refinancings. The houses tracked by FHFA increased 5.81 percent from March 31 last year to March 31 this year. Those houses are bought with conventional mortgages sold to or backed by Fannie Mae and Freddie Mac, therefore conforming to Fannie’s and Freddie’s underwriting guidelines. That means a loan limit of $417,000 in most of the country, including here.”

“Oklahoma’s appreciation, generally, is tied to two main things: the energy business and a relative shortage of homes on the market: a 3.55-month supply in the Oklahoma City area, according to the Metro Association of Realtors. Housing ramifications of the oil price slide — pretty much nil in Oklahoma City, but felt in some smaller cities in the state — probably hadn’t yet fully materialized. Low inventory is sure to persist as long as oil doesn’t bust and homebuilding continues its slowdown.”

The Calgary Sun in Canada. “The Canada Mortgage and Housing Corp.’s (CMHC) Spring 2015 Calgary Housing Market Outlook forecast says the market is not as bad as some believe. Expect 13,200 new home starts this year, including 5,700 single-family and 7,500 multi-family homes, says Richard Cho, CMHC’s principal, market analyst for Calgary. Last year, builders nailed together a record 10,637 multi-family homes, but the forecasted reduction in the sector his year will be followed by another in 2016.”

“At the end of April, there were 14,614 homes of all kinds under construction in the Calgary census metropolitan area (CMA), including 12,546 inside Calgary city limits. ‘The number of units under construction remains elevated, which will result in upward pressure on inventory levels once they reach completion,’ says Cho. ‘Combined with moderating demand and increased selection in the existing home market, this will reduce multi-family starts to 6,000 in 2016.’”

“Despite a high number of listings, CMHC predicts the average MLS residential price to decline only 2.7% to $448,000 in 2015. The number of new listings is expected to erode in 2016, says Cho. ‘Active listings will follow suit, which will allow a marginal rate of price growth in 2016 as sales are expected to experience a slight uptick,’ he says. ‘In 2016, the average MLS price will increase to $453,000.’”

From Bloomberg. “Teck Resources Ltd., the world’s second-largest exporter of coal used in steelmaking, plans to idle six Canadian operations in response to a four-year slide in prices and demand. The move will cut metallurgical coal production by about 1.5 million metric tons, or 22 percent, in the period. Teck is considering more production cuts for later in the year. ‘The cut in and of itself is still only a drop in the bucket — more cuts are needed,’ Greg Barnes, a Toronto-based analyst at TD Securities, said in a note.”

“Metallurgical coal prices could plunge beneath a seven-year low amid global oversupply and slowing demand from China, the world’s largest consumer of the commodity. The third-quarter benchmark could tumble to $90 to $95 a metric ton, according to Barnes. The $109.50 benchmark is down from a 2011 high of $330.”

“With the temporary shutdowns, Teck joins Glencore Plc as an industry heavyweight proactively curbing production while some competitors struggle to survive. Glencore, the world’s largest exporter of coal for power plants, said in February it’s trimming its Australian output of the fuel by 15 million tons this year.”

“Earlier this month, Patriot Coal Corp. filed for bankruptcy for the second time in three years. This week, U.S. companies Alpha Natural Resources Inc., Arch Coal Inc. and Peabody Energy Corp., which all produce thermal and metallurgical coal, traded at all-time lows.”

ABC on Australia. “Three or four years ago, the influx of miners capitalising on the coal boom caused a real estate bonanza in Moranbah. But now the real estate bubble has burst and people relying on housing and rental returns have been hit hard. Former head of the Moranbah Traders Association, Peter Finlay, says he has been contacted by many people caught out. ‘Some of those people have just been devastated,’ he says. ‘I know of at least one suicide. Last year, house prices fell by almost 40 per cent, trapping investors.’”

“The 100 per cent fly-in, fly-out operations at the two mines owned by BMA were approved by Queensland’s Bligh Labor government in 2011. Diane is an investor from Melbourne, and says she’s angry about what has happened in Moranbah. ‘I have five properties, four in Moranbah and one in Dysart, which are worth probably, I don’t know, 40 per cent of what they were when I bought them,’ she says. ‘Now the mortgage is a lot more than the value of the properties, every single one of them. They’re what they call underwater. The rents are nowhere near covering the mortgage. So I’m working seven days a week in my consultancy business just to pay the interest on those mortgages. I’m not paying the principal, just the interest, to stop the bank coming after me. It’s a pretty awful situation to be in.’”

Bits Bucket for May 31, 2015

Post off-topic ideas, links, and Craigslist finds here.