November 20, 2015

It’s Investors Who Are In The Headlights

It’s Friday desk clearing time for this blogger. “Is Fed chair Janet Yellen a sorceress who needs to conjure up a new spell? One online retail executive seems to think so. Patrick Byrne, the CEO of Overstock, said in the company’s earnings release Monday that the United States economy has been lifted by ‘Janet Yellen’s Magic Money Machine.’ Presumably, the ‘machine’ is the Fed’s poiicy of low interest rates. Byrne said this machine ‘has kept sales of homes and home-related products robust.’ But he warned of a discouraging shift in the economy in the third quarter.”

“He noted that there were ’sharp traffic swings for competitors with sites catering to disposable income’ — particularly fashion and jewelery retailers. During a conference call with analysts, Byrne elaborated on these comments, saying that ‘there’s a real secular, fundamental question mark about the economy’ and that he is ‘quite bearish’ about consumer spending outside of housing. Yes, Home Depot and Lowe’s are still doing well. But the lousy results from Macy’s and Gap this week are not a good sign. Walmart is the worst-performing stock in the Dow this year. And shares of higher-end retailers like Nordstrom and Tiffany have plunged too. So there’s a case to be made that Yellen’s magic is starting to wear off.”

“People buying homes in Waco generally find bargains, according to a report by real estate giant Coldwell Banker. Trammell Kelly, a residential real estate specialist with Kelly Realtors, said would-be home buyers from California or the Northeast typically sell upscale homes before considering a move to Texas, or Waco. ‘They are simply amazed at how much more house they can acquire here for the price,’ Kelly said, adding he is seeing an increasing number of investors from California and even the Dallas-Fort Worth area who are buying homes locally not to live in but to resell.”

“Coldwell Banker reports that 50 of the top 100 most expensive markets in the United States are in California, with Newport Beach topping the list. The average listing price of a four-bedroom, two-bath home there is $2.29 million.”

“Orange County home sales and prices ‘lost steam’ in October, dipping more than usual from September amid the elevated cost and restricted supply of homes, CoreLogic reported. ‘The luxury market got hit in September because of the stock market dip,’ said Steve Thomas, author of ReportsOnHousing. ‘For example, demand in Newport Coast dropped down to 5 pending sales (as of) … Sept. 24, and there were 121 homes on the market at the time.’”

“The fictional home of Al Pacino’s character (Tony Montana) in the 1983 film Scarface has sold after a price drop of almost US $23 million. The ridiculously opulent Montecito, California mansion spent a whopping 17 months on the market. Russian-born financier Sergey Grishin bought the estate for a reported $20 million in 2008, when U.S. housing prices went through a major crash. Thinking he could make a pretty penny, he waited until 2014 to put the Montecito home on the market at $35 million, but no buyers bit. Months later, he dropped the price by nearly half, to $17.9 million. It finally sold at $12.26 million, leaving Grishin over $7.7 million in the hole.”

“RealtyTrac released their October Foreclosure Market Report and it’s a mixed bag. Despite a fairly steady flow of repossessions and auctions over the last few years Chicago’s shadow inventory has really flattened out. Gone are the days when it would decline by 800 or more units in one month. In fact, October’s level was actually up over September. That was the second time in less than a year where we saw an actual increase in the level of shadow inventory.”

“I don’t understand why this is happening since you would expect the auctions and repossessions to be steadily driving this number down. Could we really have reached a steady state where we are perpetually dealing with the most intractable properties that you can’t even give away?”

“Not so long ago, houses in Alberta suburbs couldn’t be built quickly enough to keep up with demand — but a report says the number of new houses that aren’t sold or rented has jumped by nearly one-third in Edmonton and by a smaller degree in Calgary. An ATB Financial report says Edmonton has seen the number of so-called ‘unabsorbed’ new houses skyrocket by more than 30 per cent in the past year. Currently there are 403 unabsorbed houses in Calgary, a number that’s falling, compared to Edmonton’s growing number of 949, according to ATB Financial. Some ATB economists believe the current economic conditions in the province will cause the number of completed but so-called ‘unabsorbed’ homes to grow.”

“Housing investors have suddenly become a bunch of nervous Nellies. A survey by Digital Financial Analytics, shows only 58 per cent of one-property investors expect higher prices in the coming 12 months, down from 83 per cent in the September survey. The change of heart has been no less dramatic for portfolio investors owning more than one property, with only 63 per cent now expecting price rises, compared with 89 per cent in September. The balance of supply and demand in the housing market is continuing to shift, with a divergence between the number of homes newly listed for sale and the total still on the market waiting for a buyer. Sydney and Perth share most of the blame.”

“‘House price expectations are on the turn, with investors, those eternal optimists, now more uncertain about future capital appreciation,’ DFA’s principal Martin North said. All market segments, including home owners and first home buyers, are less inclined to expect rising prices but it’s investors who are ‘in the headlights.’ ‘Such large changes over just a couple of months are unusual,’ Mr North said. The survey’s construction may even understate the extent of the turnaround. It is based on responses gathered over the latest 12 months.”

“Westpac economist reckon the Auckland housing market is suffering a hangover from what it calls ‘recent excesses.’ ‘The weakness was especially concentrated in Auckland, with sales down 15 per cent and prices down almost 5 per cent in just one month,’ say the report’s authors. ‘This confirms the idea that some of the recent froth in the Auckland market was driven by investors getting in ahead of the new regulations.’”

“The report says investors have done their dash for now, and the ‘Auckland housing market is likely to suffer the resulting hangover, for at least a few more months.’ Peter Thompson, managing director of real estate firm Barfoot & Thompson, says: ‘What is clear is that the rate of price rise that occurred in September, at the start of the spring season, has not been sustained. Clearance at auctions has definitely slowed,’ he says. ‘However, buyers are no longer under the same pressure to meet vendor price expectations, and the properties that are selling are those with realistic reserves.’”

“With the real-estate boom entering its fourth year banks and developers are eager to expand credit to the sector, though regulators say they are monitoring lending for real estate for signs of a bubble. The National Bank of Cambodia could increase the risk weights associated with real-estate lending. ‘The real-estate and construction sector has grown very fast. It seems to me that supply is in excess of demand. It is a bubble, but I don’t know when it will bust,’ said Economist Srey Chanthy. ‘If you have time, spend a day hanging around in Phnom Penh and the suburban areas. You will find that there are a lot of real-estate projects going on, many buildings, apartments/condos and they have low occupancy rates, some are even empty. Most project owners, apartment and condo investors, buyers and customers borrow from banks. If they cannot pay, the bust will occur and prices will drop.’”

“Stephen Higgins, managing partner at research firm Mekong Strategic, agreed. ‘It’s a bubble, particularly in the apartment market, with many buildings having very high vacancy rates, yet there’s a lot more supply coming online,’ he said.”

“Home sales Belgravia, the London district favored by Russian oligarchs for its large Regency-style houses, are slumping after the collapse of the ruble against the pound. Transactions dropped 25 percent in the neighborhood in the 10 months through October from a year earlier, compared with a decline of almost 20 percent in the rest of central London’s best districts, according to researcher Lonres. Sales of luxury homes in the capital have also been damped by an increase in the stamp duty sales tax and falling commodity values. That’s prompted broker W.A. Ellis LLP to warn that ‘the bubble may already have burst’ for the most expensive properties.”

“‘The share of Russian buyers in the prime central London market is down due largely to the currency weakness and difficulty in getting money out of the country,’ said Charles McDowell, who advises wealthy clients on buying luxury homes in London. ‘This has affected Belgravia and Knightsbridge in particular, which is very much the Russian heartland.’”

“During his career apogee in the early 2000s, Oscar-winning actor Nicolas Cage was one of the highest-paid celebrities on the planet and was making as much as $40 million a year. In 2009, the once high-flying Cage filed for bankruptcy. At the age of 51, he’s only now climbing back to financial solvency. How could a multi-millionaire movie star fall so far, so fast? Simply put, Cage made colossally stupid real estate investments — and dug a deeper hole for himself through poor management of his property-related debts and obligations.”

“His vast real estate empire included two apartments on a ritzy stretch of New York’s Fifth Avenue; three castles (one an ancient Bavarian castle in Germany); Dean Martin’s former home in Beverly Hills, Calif.; a townhouse in Bath, England; and two islands in the Bahamas. His magnificent homes, apartments and land either went into foreclosure or were sold for huge losses. What’s more, the IRS came after him for $6.3 million in back property taxes.”

Bits Bucket for November 20, 2015

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