June 5, 2015

Waves That Could Get A Bit Choppy

It’s Friday desk clearing time for this blogger. “The housing market in Southwest Florida has been red-hot for the past three years. Now it’s about to get blistering. Because many buyers are older, affluent and paying cash, said Naples real estate agent Ryan Schwartz, ‘no one is getting appraisals, and that’s pushing up prices dramatically fast.’”

“Chicago residents Joanna and Thomas Wala recently bought a three-bedroom home in Bonita Springs. They plan to use it occasionally for vacations, and eventually to make it their retirement place in the sun — even though they are both still in their 40s and not at all ready to retire. In the meantime, they are covering their expenses and even making a small profit by renting it out seasonally. ‘Moving here now was out of the question,’ said Joanna. ‘But I did the calculations, and buying just made so much sense. We have something that’s worth something, and its value is growing.’”

“In the latest sign of froth in the high-end home market, Manhattan penthouses are being offered for millions more than they sold for just a year or two ago. While brokers say the rise of penthouse flipping is a sign of strength in the market, with tight supply and strong demand from rich overseas buyers, others say it signals excessive expectations for the luxury home market. ‘I don’t see it as a sign of the strength of the market,’ said Jonathan Miller of the appraisal firm Miller Samuel. ‘I think it’s buyers testing the market and seeing if they can get their number. If they can’t, no harm, no foul.’”

“Miller also said the rise of penthouse flipping is a sign of the new wave of buyers-foreign and U.S. rich who see real estate as investments rather than primary residences. Since they are more like safe-deposit boxes than homes, owners are more free to flip them if the market seems attractive.”

“A real estate developer said he is taking the unusual step of changing his 38-unit Salt Ballard Condos project to apartments due to rising construction costs and concerns over construction defect liability. Changing condos to apartments was common during the Great Recession’s devastating condo crash. In his letter to buyers, Dave deBruyn, principal of Vancouver, British Columbia-based InHaus Development, said there is a record amount of construction in the greater Seattle area, including more than even at the last market peak of 2007.”

“Adding more apartments in Ballard adds a risk as almost 1,200 units were build in the neighborhood in 2013 and 2014. Landlords are offering higher-than-market concessions, such as some free rent. Yet the vacancy rate in the first quarter for new apartments was a whopping 45 percent. That isn’t slowing construction, however. There are just over 600 units under construction and 450 approved by the city in Ballard.”

“There are plenty of short-term rental opportunities on the Monterey Peninsula, even in cities that have ordinances against the practice. Monterey and Carmel ban short-term rentals. ‘It’s purely financial,’ one Monterey property owner said of her motivation to rent out short term. ‘To stay in my home, I need this income.’ She asked that her name not be used for fear of repercussions from the city.”

“Calgary landlords are seeing a noticeable drop in the number of prospective tenants and some are opting to reduce their rents in response, as the city’s once red-hot housing market appears to have cooled substantially, according to industry representatives. ‘We’re seeing a lot of people needing to break their lease,’ said Bill Blake of the Alberta Landlords Association. ‘A lot of newer landlords who just got into the market in the past five years when things have been really hot, they’re getting really stressed out.’”

“The lack of demand for luxury properties, weakening of oil prices and strengthening of the US dollar are causing house prices in Dubai to fall. Haider Ali Khan, CEO of property portal Bayut, attributed the realty price decline to a number of factors, including the strengthening of the US dollar, slow growth in the global markets and fall of the oil prices. ‘The oil price crunch has also affected demand from Russian and Saudi investors, whose wealth has lost value due to the global crisis,’ he said.”

“Like the Byculla project, at least three others in central Mumbai have dropped conditions for buyers, indicating that exclusive housing is gradually becoming less commercially viable. For the first time in years, supply is keeping up with demand and, in many cases, outstripping it. Dreading the prospect of unsold flats, many builders are dropping archaic biases in favour of cold, hard cash. ‘Builders are now forced to accommodate Muslims as they need money - that’s all,’ said Amin Patel, a Congress legislator and developer.”

“Leo Johnson, partner at PwC, said 81% of pension funds are invested in the Chinese housing market and they could experience ‘waves that could start to get a bit choppy.’ He said: ‘If you kick the tyres on it, what you see is you’ve got some trends that suggest they’re overbuilt and there’s empty housing stock. You’re seeing a market that’s starting to look like 80 years’ worth of oversupply already.’”

“Over the past 25 years we have tied too much capital to the ‘unproductive asset’ of housing, and too little to the productive entities we call ‘business’. Houses contribute to the economy by turning out happy, healthy workers who labour to create the goods and services Australians consume, or to create tradable goods and services to help pay for imports. And yes, Australian dwellings have become fancier, better structures over time so are worth more. But that’s not in itself enough to drive the stock of housing debt from 20 per cent of GDP in 1990 to around 90 per cent today.”

“When the GFC threatened to halt the growth of housing credit – waves of federal and state government hand-outs to help first home buyers get onto the housing ladder. What’s forgotten in that long-term story is that each new generation has to direct an ever-larger proportion of their pay packets to servicing debt.”

“Australia’s rebalancing away from a heavy dependence on the resources sector comes at time when we must also rebalance away from a long property and credit boom. That doesn’t have to mean a bubble will ‘burst’, but it does mean the end of an era in which Aussie pay packets were assumed to be able to service unlimited amounts of debt. If anything is bursting, it’s that fantasy.”

Bits Bucket for June 5, 2015

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