The Housing Bubble

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A report from the Associated Press. “There’s a dark side to those delightfully low gas prices: Housing markets are slumping in communities that were recently flush from the U.S. shale oil fracking boom. Home sales are down sharply this year in North Dakota and the West Texas cities of Midland and Odessa. Home sales have also slowed in El Paso, and, more recently, in Houston. The Permian basin in West Texas and the Bakken Formation in western North Dakota quickly became magnets for workers. ‘It was not unusual to have a house on the market and, in less than a week, have multiple offers. It was a crazy market,’ said Scott Kesner, chairman of the Texas Association of Realtors.”

“That frenzy began to dissipate early in 2015 as the slump in crude dragged on, and it has since deepened. Real estate agents in Houston say the loss of oil jobs has resulted in less competition for homes — fewer are fetching offers from multiple bidders. On the buyers’ side, the oil industry’s woes are giving some the confidence to put in lower offers, said Tim Surratt, an agent with Greenwood King Properties in Houston. In Minot, North Dakota, which is located within the Bakken Formation, the housing market has cooled somewhat after being red hot for years, said Dorothy Martwick, broker-owner of Century 21 Action Realtors. Now, she said, the scales have tipped more in favor of buyers.”

“‘In 2011, you could ask whatever your wanted for your house and you might get someone to pay it,’ she said. ‘Now, you have to realistically put it on the market for what it’s worth.’”

NewsOK in Oklahoma. “Home construction in the Oklahoma City area, coasting to a slowdown all year, will probably hit the brakes early next year in face of the swooning oil-and-gas business. Edmond homebuilder Caleb McCaleb said that’s the thinking of his colleagues in the business. McCaleb said homebuilders have seen a buildup of their own new inventory, reason enough for them to retreat. ‘Where we’re seeing the trend, it’s starting to trend down’ he said, and builders expect to pull back sharply ‘just because of the energy sector.’”

The Alaska Dispatch News. “Anxiety about the economy has many Alaskans unsure of what moves to make when it comes to buying or selling a home. The answer appears to depend on the price of the house, according to the latest available real estate statistics from the Multiple Listing Service. Above $750,000, it’s a buyer’s market. The inventory for up-market homes is estimated at about one year and would likely be even higher but for the fact that some homeowners in that higher bracket are holding back for now because they can’t demand the prices they want, the report said.”

“‘Anecdotal evidence suggests that the less-motivated sellers simply withdrew from the market when their price objectives were not achieved,’ the report said.”

“David Windsor, an associate broker at RE/MAX Dynamic Properties who works in the upper tier of the housing market, said he expects a blip in the real estate market, but no crash. He routinely tells clients selling pricier properties to be prepared for the selling process to take about two years. ‘Everybody seems to be worried about the upper end, but I’m not at all. There are plenty of people both inside and outside of this state with money,’ Windsor said. ‘And I might add, a million dollars is not that much anymore, in my opinion. There are plenty of folks that can afford homes above a million dollars.’”

The Bismarck Tribune in North Dakota. “With fewer people streaming into the state, demand for housing has slowed in central and western North Dakota during the past year. As a result, buyers are taking more time, looking at as many as 20 to 40 homes rather than being required to act fast and ‘take it or leave it.’ While the number of homes sold is down and apartment vacancy rates are up, Nancy Deichert, executive director of the Bismarck-Mandan Board of Realtors, calls the small decline ‘a return to normal.’”

“Jeremy Petron, president of the Bismarck-Mandan Apartment Association, said a lot of units have been built and the influx of people into the area has slowed. He said the area may even be a little overbuilt when it comes to apartments. Combined, those factors have led to an average vacancy rate of 5 percent to 6 percent, according to an association survey. Vacancies at newer complexes are higher, around 10 percent, because most of those are higher-end apartments, Petron said. A high-end, three-bedroom apartment typically rents for $1,300 to $1,500 per month.”

“In Watford City, the number of vacant apartments is way up. ‘There’s a pile of them coming online now,’ said Gene Veeder, public relations director for McKenzie County Development. ‘Availability is much different than this time last year.’ Rent is more competitively priced, $1,200 to $1,600 per month for a two-bedroom is common, Veeder said. ‘You still see some $2,500 but not many,’ Veeder said.”

“A typical single-family home costs from $250,000 to $300,000. A 20 percent down payment makes it hard to get a loan and some might be reluctant to buy because they got upside down on a house previously. ‘We don’t have inventory of older homes on the market,’ said Veeder, adding that many were snatched up by companies for housing their workers and others were turned into rental units. ‘What we don’t see anymore is a $75,000 house going for $300,000,’ Veeder said.”

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A report from the Canadian Press. “Climbing Vancouver’s property ladder can be a daunting experience at any time, but recent scorching market conditions have forced many to re-evaluate their ownership goals as prices climb skyward and the supply dwindles. When Eleanor King started looking for a new home in February, she wanted a place that she could renovate and add a rental suite for some extra income. King says the initial search was “horrible” because every house in her price range went within days of going on the market. Even homes that seemed uninhabitable were selling for $1 million. Then an ad in a local paper caught King’s eye. There were six townhouses for sale, just off Vancouver’s trendy Commercial Drive.”

“King purchased all the townhouses in July for nearly three times her original budget. She had to invest ‘a lot of money’ and take out a large mortgage to do so, but five of the homes are now being rented and she expects that the income will become part of her pension. ‘I’m hoping that as it goes along, it will start to pay in instead of me paying out,’ King says.”

Bloomberg on the UK. “Knightsbridge is the worst performing housing market in central London this year as rising taxes curb valuations in the district. Prices fell 6.1 percent as an increase in the stamp duty charge damped demand and sales volumes fell, according to Rupert des Forges, a partner at broker Knight Frank LLP. Knightsbridge ‘was probably at its most frothy when the market turned,’ Des Forges said. From March 2014, ‘a lot of asking prices were beginning to get very disconnected from transactional levels,’ he said.”

NDTV on India. “Through 2015, property developers and investors sitting on plenty of real estate have been hoping feverishly for sales and prices to recover. So I got the MD & CEOs of India’s most credible corporate houses in real estate together for a crystal ball-gazing debate on property prices in 2016. Anita Arjundas of Mahindra Life Space Developers added ‘Look at data in terms of promotions, offers, and the fact that almost all projects today are launched on payment linked plans. So you pay 20% now, 80% on possession - that’s straight discounting. Prices have definitely corrected at a project to project level by 10 - 15% and even where they have remained flat all through 2015, there is time discounting.’”

“Many developers who have been lax and taken the buyer for granted have realized that fixing their business is the only way to win the buyer back. That’s also the beauty of a slowdown. Complacency vanishes. There’s a rethink on the product.”

The Korea Times. “The housing market seems to be losing its upward momentum after the key rate hike by the United States Fed and concerns of an oversupply of new apartments. Around 320,000 new apartments are scheduled to be sold in 2016, which is the most since 2008. The government also announced plans to strengthen mortgage regulations. In the provinces, banks currently take into account only the value of the house or apartment when someone applies for a mortgage. From May, however, they will also evaluate the applicant’s income to see whether he or she has the capability to pay back the mortgage.”

“The measure comes amid growing concerns over the record-high household debt which is nearing 1,200 trillion won, but the announcement of the plan negatively affected the housing market in the provinces. According to the Korea Appraisal Board, apartment prices in eight provinces and cities including South Chungcheong Province, North Gyeongsang Province and Daegu fell this week. ‘The momentum for the price rise has been slowing down since mid-November. Following the realization of negative factors on the real estate market, investors are increasingly worried about the direction of the market,’ said Lee Mi-yun, a researcher at Real Estate 114. ‘On top of the key rate hike in the United States and the strengthening of mortgage regulations, concern is increasing of the oversupply of housing.’”

From China Daily. “The rare official notice urging property developers to ‘properly’ reduce housing prices should serve as a stern warning to those who bid recklessly to send land prices soaring in first-tier cities such as Beijing and Shanghai. To effectively and timely destock the housing inventory, local governments must take measures to stop the recent return of ‘land kings,’ who buy and sell plots at prices higher than even the current housing prices.”

“It is not because such land sales will substantially change the overall supply or prices in local property markets, but by tolerating jaw-dropping high land prices, local governments will seriously undermine the credibility of the national campaign to slow down, if not totally stop, the rapid accumulation of unsold houses. Latest data show the country’s unsold home inventory hit 696.4 million square meters at the end of November, up 10 million sq m over the record figure reached in just the previous month.”

“To put the problem of oversupply in perspective, according to E-House China R&D Institute, for every new home sold in first-tier cities in October, there were nine unsold; the ratio was high as 1 to 12.2 and 1 to 18.9 in second-and third-tier cities. By linking the reduction of unsold houses with the plan to significantly raise the number of migrant workers who can permanently settle in cities in the coming five years, the country’s top leaders are trying to find a creative way to save the real estate sector from being a propeller to becoming a drag on the national economy as they advance the course of urbanization.”

“But if property developers mistake the move as another step to spur housing prices and keep increasing the costs of land in major cities, potential homebuyers will have no choice but to adopt a wait-and-see approach while unsold houses loom as a threat to the economy.”

The Malaysian Insider. “Amid the challenging economic environment, the property industry is expected to remain tough next year as a result of the slowdown from the 2011-2013 property boom which saw home prices growing at double digits. Since the second half of this year, there was a reported growing number of investors who were eager to dump their properties even at below market price. According to the latest report by the Valuation and Property Services, the residential overhang and unsold situation in Kuala Lumpur was not encouraging.”

“The overhang numbers for condominiums in the first half of 2015 increased to 1,346 units worth RM1.23 billion, up by 28.7% in volume and 28.1% in value compared to the same period in 2014. The report also revealed the increase of unsold “under construction and not constructed” units to 10,742 and 1,181 units respectively. There were 9,291 transactions worth RM11.01 billion in the first half of 2015 in Kuala Lumpur, a decline of 7.4% in volume against the same period of 2014 while transaction value slipped by 6.5% after experiencing an 18.1% uptrend in the corresponding period.”

“UEM Sunrise Bhd’s CEO, Anwar Syahrin Abdul Ajib said, the rental market may face downward pressure next year as some house buyers who intended to sell their luxury apartments/ properties bought three years ago during the boom period, may find it difficult to get buyers. ‘Many of them who bought their houses with Developers Interest Bearing Scheme will now have to pay their loans. If they cannot sell, they will have to rent out their properties and there will be an influx of rental offerings in the market which will then push down the rates,’ he said.”

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It’s Friday desk clearing time for this blogger, “A recent report postulates that the Denver housing market is experiencing ‘bubble’ conditions. It is easy for one to look back and say, ‘Hey, the last time we had values go up this far in such a short time frame, prices crashed a few years later. Therefore, we must be in a bubble again.’ Well, it is easy to see now that the conditions supporting the last bubble were built out of straw. Today’s market has been based on the age old laws of supply and demand. I do not believe we are in a housing bubble here in Denver at this time. We just do not have the catalysts in place to create a rush for the exits.”

“November was a volatile, if mixed, bag for Bay Area home sales. ‘You’ve got a region that’s one of the most expensive in the country, with prices that a lot of people would consider stratospheric,’ observed Andrew LePage, research analyst for CoreLogic. ‘And yet you’re still posting some surprising year-over-year gains.’ Richard Yau, who works in IT in San Francisco, sold his three-bedroom ranch house in Dublin last month. Watching values appreciate, he had considered waiting another year to sell, but decided to jump now: ‘Because I feel things are about to downturn. We may be in a mini-bubble.’”

“A new real estate study shows it’s more affordable to rent a 3-bedroom home in the Sacramento area than to buy one. Daren Blomquist with RealtyTrac says in Placer County, average wage earners would need to spend nearly 60 percent of their income to buy a home, in El Dorado County it’s 67 percent and in Yolo County it’s 54 percent. ‘We’re starting to see numbers in some of these counties that are some red flags,’ says Blomquist, ‘that we have another bit of a…I’m hesitant to use the word ‘bubble,’ but a bit of a bubble forming when you start to see affordability become that high.’”

“The unemployment rate is not nearly as low as normal for this point in the cycle in Arizona and the number of jobs being created is not nearly as rapid. Thus, Economist Elliott Pollack said in his most recent report, there is less need for people who are looking for a job to move here. According to R.L. Brown, November saw 1,076 new housing permits in Greater Phoenix. This is a gain of almost 76 percent over a year ago. For the first 11 months of the year, permits are up 48.3 percent. Brown said ‘Metro Phoenix appears to be on a roll and the housing industry is feeling almost euphoric.’”

“Prices for luxury homes are moving in the opposite direction from the broader Manhattan market. New York’s high-end inventory has ballooned in recent years as developers focused on building large and lavish units in an appeal to wealthy investors, who now appear to be more hesitant to buy. ‘We have a lot of overpriced apartments on the market and that’s the reason for a slowdown,’ said Donna Olshan, author of a weekly newsletter on the New York luxury market. She believes the market has plateaued rather than peaked. ‘Tremendous overpricing means that marketing periods are longer, and the people who are overpriced are going to have to correct.’”

“This week, oil prices in Texas were just under $35 a barrel. Realtors warn a steady decrease in gas prices could lead to a standstill in the housing market. ‘If gas prices continue to just plummet and we see it get down to $1.25, we’ll begin to see more panic,’ Wolf says. Wolf says currently the housing market in West Texas is at a standstill. But fortunately, East Texas isn’t just dependent on oil. ‘If there was a housing crash we could definitely see values begin to trickle down, eight months out because of this.’”

“President and CEO of Fair Oil Company, Bob Garrett, says in Texas there have already been thousands of jobs lost. And if this downward trend continues, it won’t just be those who work in the oil industry feeling the impact. ‘People depend on the oil industry for their livelihood. They tend to be higher-paying jobs and with that many people losing their jobs it’s going to trickle down into housing, car sales, entertainment,’ Garrett says.”

“As crude prices have plummeted over the past 18 months amid a global surplus, new struggles engulfed the city, with thousands of jobs disappearing overnight and large swaths of workers up and leaving Williston — and North Dakota in general. Perhaps the hardest-hit sector was real estate. Much of the residential construction was planned with the assumption that people would keep moving to town. City officials estimated hotels and apartments, many of which were built during the boom, were at about 50-60 percent occupancy in November.”

“‘The market’s obviously slowed way down across the board,’ said Ryan Visser, an agent at Fredricksen Real Estate in Williston. Visser said there were more than 400 properties listed for sale, the most in nearly four decades. ‘So goes oil, so goes the real estate market.’”

“Crime is rising, home prices are falling and food banks are overwhelmed in Calgary as job losses spread. And the worst isn’t yet over in the heart of Canada’s oil patch. Some of the city’s largest employers are poised to cut more jobs in 2016. Jillian Berling-MacKenzie, 25, was one of the lucky few of her graduating geology class to secure full-time work this year, at oil company ConocoPhillips. She bought a house with her boyfriend, also a newly graduated geologist with a job, before they both became victims of the cuts. A friend’s company has provided some contract work paying slightly more than employment insurance as Berling-MacKenzie tries to land positions just about anywhere, seeing no postings she qualifies for in her field.”

“‘We all know someone who has lost a job,’ Naheed Nenshi, the city’s mayor, said in a speech this month, lamenting the ‘funeral’-like atmosphere in the business community.”

“The Big Short, the movie about the people who successfully bet that the housing bubble would pop, has been reigniting outrage over the shady, unethical, and downright illegal activities of America’s most notorious street in lower Manhattan. You might start to wonder: Is all the risky Wall Street behavior that led to the crisis still going on? Susan Wachter, a real estate and finance professor at the Wharton School who foresaw and warned about the looming disaster well before the collapse happened, is now concerned that the solution to the crisis generated the seeds of another.”

“Essentially, she argues, the government nationalized the entire residential mortgage market, handing the reins to Fannie Mae, Freddie Mac, and the Federal Housing Authority. Although these entities don’t make dangerous CDOs, and you can’t buy credit default swaps from them, our reliance on them leaves the economy vulnerable. ‘We’ve nationalized a system that isn’t supposed to be nationalized and that is not sustainable,’ Wachter says. ‘Next time it’s gonna be a different story: It’s not gonna be CDSs and CDOs which take us down. It’s what we put in their place that exposes us.’”

“This year, make your own ‘Miracle on 34th Street’ on a West Valley street, avenue or boulevard. Remember what a new home meant to the cherubic, Santa-doubting Natalie Wood in the 1947 holiday film classic? That made the childhood star happy, and could you and your family, too. The drop in demand can be frustrating for sellers and their agents, but the attitude of prospective buyers can reduce this. ‘Sellers are most anxious during the holidays, and the spirit of excitement can gain buyers a successful buy,’ said Frank Aazami, at Russ Lyons Sotheby’s, Scottsdale.”

“As a prepared buyer, look at your options, both resale and new. ‘On several occasions I have taken clients to a new home development, and they have found a house to buy,’ said Liz Recchia, a Realtor for Phoenix-based We Sell Real Estate. ‘Some homebuilders are offering great incentives, everything from loan terms to landscaping to pre-paid HOA dues to upgraded interiors, making new homes sometimes more affordable than resale homes.’”

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Post off-topic ideas, links, and Craigslist finds here. Please visit my Youtube channel which you can also find here:

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Post off-topic ideas, links, and Craigslist finds here. Please visit my Youtube channel which you can also find here:

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A report from Bloomberg. “One of the few forecasters to predict both the start and peak of China’s equity boom is now warning the nation will be buffeted by the same forces that caused financial crises around the world over the past four decades. Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong, says a shortage of dollars was the common feature in the oil rout in the 1970s, Latin American debt turmoil in the 1980s, the Asian currencies collapse in 1997 and the global crisis in 2008. Next year will see Federal Reserve interest-rate increases, an improving U.S. current-account balance and a stronger greenback, putting strains on the most-leveraged parts of the world’s second-largest economy, he says.”

“‘Historically, every time the U.S. current account improved, concurrent with dollar strength, some country somewhere in the world plunged into some sort of crisis,’ Hong said. ‘The pressure from a Fed tightening and thus a dollar liquidity shortage scenario will more likely show up’ in Hong Kong property as well as China’s online lending and high-yield corporate bonds, he said.”

“Hot money that entered China with fake export invoicing, metals purchases and disguised foreign investment is now heading for the exit. ‘All roads to hell are paved with positive carry,’ said Hong.”

The South China Morning Post on Hong Kong. “Home sales in the secondary market remained sluggish over the first weekend after the US interest rate rise, forcing owners to knock down prices by up to HK$1 million to speed up sales, according to agents. But even though more owners are willing to cut prices by five to 10 per cent, buyers are still not biting, said Jeffrey Ng, executive director of Hong Kong Property Services (Agency). ‘What we have seen is that most potential buyers want to make use of the negative news to ask for a bargain,’ he said.”

“Chris Wong, executive director at Century 21 Sunshine Property, said owners in general are likely to offer bigger discounts following the rate hike. ‘No one wants to buy now as buyers in general believe home prices will fall,’ he said. The number of flat viewing appointments also saw a week-on-week drop of 20 per cent at the weekend, he said. ‘The market is even worse than in 2003 when Hong Kong was gripped by the outbreak of the severe acute respiratory syndrome (SARS) epidemic.’”

Business Times on Singapore. “More distressed properties were put up for auction this year, but barely a fraction were sold. The number of auction properties rose to a six-year high of 796 in 2015, going by Colliers data which includes relistings, but the number that got sold was dismal at just 33. Grace Ng, deputy managing director, auction & sales at Colliers, said that most buyers now prefer to negotiate privately with sellers as they can seal better deals to buffer themselves against falling property prices and an impending increase in interest rates.”

“A price gap stubbornly persists between what bargain hunters are willing to pay and what owners are willing to accept. Ms Ng said: ‘There has been a stalemate between buyers and sellers. The price gap has not really narrowed. Vendors are more open to negotiations nowadays, but there is a tendency for buyers to lower the offer prices as they drive a hard bargain.’”

“Analysts expect that amid the subdued economic growth forecast for Singapore, owners’ continuing struggle to secure tenants and stiff competition from other sellers with comparable properties in the market, the number of properties listed for auction would probably trend upwards. Property owners may then be forced to become more realistic in setting their price expectations, they added.”

The Australian. “House price woes are deepening in Australian mining towns with one in every two homes in some areas selling at a loss. Homes in Mackay now attracting between half to two-thirds of the weekly rent that they achieved during the high times of 2013, while other mining towns throughout outback Western Australia, outback South Australia and NSW’s Hunter regions are feeling the pain of an ongoing price correction.”

“‘The slowdown in resource-­related investment and falling commodity prices is continuing to have a big impact on housing markets across (mining) regions,’ analyst Cameron Kusher told The Australian. ‘Many homeowners wish to sell their homes in these regions. Unfortunately, buyer demand remains relatively low in these markets. As a result, those people selling are having to reduce their asking prices substantially in order to sell.’”

Moneyweb on South Africa. “It has been a slow recovery for the holiday home market after five years of zero demand for coastal properties. It’s now a buyers’ market and not a seller’s market says Ronald Ennik, principal of luxury real estate group Ennik Estates. ‘Deals are slow and buyers are now in a good position when sellers are a bit desperate to sell their properties. And therefore buyers can call the shots,’ says Ennik.”

“While the primary market has been in recovery mode following the onslaught of the 2008 global financial crisis, holiday homes have been muddling along. The selling of holiday properties – which are still viewed as nice-to-haves – over the years has created a glut in the market. Ennik says: ‘If people go through hard times they tend to sell their holiday properties and hold on to their primary properties.’”

Fairfax New Zealand. “Four in every 10 new mortgages are plunging the homeowners into immediate ‘mortgage stress.’ The Reserve Bank told Parliament in a recent briefing: ‘About 40 percent of residential mortgages in New Zealand are issued at a [total debt to total income] multiple of more than five (that is, five times the borrower’s gross income).’ Mortgage brokers say first time home buyers frequently spend far more than a third of their gross income on mortgage repayments, and often as much as 50 per cent.”

“Broker Campbell Hastie said interest rates were low, and were expected to stay that way for a long time, which made comparisons with the past, when people borrowed lower multiples of their gross incomes to buy homes, misleading. ‘I don’t think it is entirely correct saying borrowing five times your income is more dangerous than borrowing three times your income,’ he said.”

“William Cairns from Cairns Lockie said in places like Auckland: ‘There is no alternative. And I don’t think you can say a couple with good prospects, working hard, is being imprudent.’ Loan Market’s Karen Tatterson said such large debts were now considered normal. ‘For most it is just a cost of living. You pay back the mortgage at the minimum you can and you are going to have to do it for the rest of your life.’”

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