December 12, 2015

The Collective Madness Of The Super Cycle

It’s Friday desk clearing time for this blogger. “Potential home buyers will get some modest relief from escalating home prices next year, according to the 2016 real estate forecast from the Everitt Real Estate Center at Colorado State University. The Everitt Center predicts about 3,477 home sales in Fort Collins and Timnath with new home stats holding steady at about 825 for the year. Much of that construction will come from national builders who have flooded the Fort Collins market and control the majority of available building lots, said Eric Holsapple, founding member of the Everitt Real Estate Center. Closings in Greeley are expected to spike to 2,840, reflecting rising prices in surrounding cities as consumers drive until they qualify. ‘We are starting to see people not qualifying again for that $400,000 home that used to be $300,000,’ Holsapple said.”

“Is Related Group CEO Jorge Perez worried the Miami housing market is in another bubble? ‘Yes I think we’re building a lot,” Perez tells Bloomberg. ‘Perhaps we’re getting a little bit ahead of the demand. Nevertheless, remember there is almost no speculation because the buyers that we’re selling to right now are all cash payers - 50-percent down payments…So will there be a decrease in demand and a market slowdown? Yes it could happen. We’re seeing it now.’”

“RealtyTrac found new foreclosures — when banks first start the process — are at a 10-year low, but repossessions — when a homeowner actually loses their home — are up. ‘Nationwide, we’re still seeing the market dealing with the sins of the past when it to comes to foreclosures in the form of these bank repossessions,’ RealtyTrac’s Daren Blomquist said. ‘Those were up 60 percent in November and it was the ninth consecutive month when we saw those bank repossessions up on a year over year basis.’”

“RealtyTrac said home repossessions are up nationally because bad loans made during the mortgage crisis are just now resulting in some people losing their homes. In Texas — especially Dallas — that number of home repossessions is even higher. RealtyTrac said trouble in the oil industry may be partly to blame. The company also said to expect the trend to continue since foreclosure filings are also up in Texas. ‘We saw nearly 300 percent year-over-year increase in Texas in the bank repossessions,’ Blomquist said. ‘If we center in on Dallas, we saw 500 percent year-over-year increase.’”

“As oil continues to slide, Alberta landlords are offering more and more incentives in an attempt to woo renters to their properties at the same time as rental prices are falling in the province’s two largest cities. The number of houses, condos and apartments for rent in Calgary and Edmonton has risen sharply in 2015. Monthly rents for condos in Calgary have fallen more than 20 per cent since last year to an average of $1,716 from $2,150, RentFaster data shows. ‘In general terms, we’ve regressed to 2012, 2013 prices,’ said Mark Hawkins, owner of RentFaster.”

“The FipeZap Index, which measures the changes in price of property in twenty cities across Brazil, has released its monthly figures which show the average price per square meter of properties advertized for sale in Brazil between January and November this year presents a real decrease of 7.44 percent after inflation is taken into account. The real-estate sector is being affected by four compounding factors: high unemployment, rising inflation, insufficient wage increases and falling consumer confidence which all result in the banks becoming increasingly reluctant to lend money.”

“As the market drops, however, opportunities are arising for buyers. Many companies are offering promotions, as they did during Black November, in order to shift stock and discounts are being offered for those who can pay in cash.”

“A new report offers an infuriating insight into what’s going on inside the houses that city fringe-dwellers are clamouring to get their hands on, and the answer is nothing at all. Data analysed in a new report indicates about one in five investor-owned properties in Melbourne are unoccupied. The 2015 Speculative Vacancies Report analysed water consumption in Melbourne households, and classed those with abnormally low water consumption — a daily amount less than that used by a leaky tap — as speculative vacancies.”

“Queensland University of Technology property economics professor Chris Eves said under-utilisation of properties was a national problem, mainly in very high or very low socio-economic areas. ‘The Brisbane CBD is a good example. If you look at the unit blocks at night, there’s not a lot of lights, which indicates the owners are holding back for higher rent, they can’t get tenants, or it’s just not being used,’ he said.”

“Though there are no similar studies measuring water usage in other states, evidence of vacant dwellings has emerged elsewhere. There have been reports from Queensland that wealthy Chinese buyers leaving luxury mansions empty for most of the year had led to Gold Coast suburbs turning into ghost towns.”

“Kowloon Development Co.’s Upper East project in Hong Kong’s Hung Hom area is offering a raft of rebates and hidden discounts that can reduce the cost to a buyer as much as 14 percent, and it will throw in a second mortgage too. Kowloon Development is not alone. ‘After 12 years of a bull market, Hong Kong property is at an inflection point,’ said Spencer Leung, a Hong Kong strategist at UBS Group AG. ‘Property developers are trying hard not to paint a picture that things are going down.’”

“Leaders of the world’s No. 2 economy face a vexing problem: How can they get its people to buy more houses? China has a surplus of them. Economists generally agree that most Chinese cities are ringed with empty apartment buildings and residential developments with varying degrees of completion, from projects where the ground hasn’t been broken to fully finished apartments waiting for someone to move in. That’s bad news for the Chinese economy, and thus for the world.”

“In March, the government had started rolling out loosening measures such as multiple interest rate cuts, looser home purchase rules, and tax reductions. Others voice caution on pinning hopes on urbanization as a source of housing demand. For one, no matter how affordable a home in a city might be, it isn’t clear that rural residents would find jobs waiting for them. ‘Rural dwellers will think about job prospects and social benefits when they consider a move into the cities,’ said Song Huiyong, research director of real estate consultancy Shanghai Centaline Property. Referring to China’s old system of assigning jobs and offering guaranteed employment benefits, he added, ‘nowadays there is no such thing as centralized job allocation or iron rice bowls, so what are they going to do when they move?’”

“Even for a company that once had the global monopoly on diamond production during almost a century of all but constant expansion, the collapse in commodities prices is proving too much. Anglo American Plc will shrink beyond recognition after Chief Executive Officer Mark Cutifani on Tuesday announced a package of asset sales, mine closures and job cuts. Among the potential casualties is Minas Rio, a Brazilian iron-ore mine where spiraling costs and collapsing prices turned a $14 billion project into the epitome of the company’s predicament.”

“More recently, it sought to expand into iron ore to join the companies feeding China’s seemingly insatiable need for steel. Like banks before the financial crisis or energy companies before the collapse of oil prices, Anglo American is the classic tale of over-extending during the good times only to be left with too much debt and too little money when markets take a dive.”

“‘Minas Rio is the high water mark of their mistakes,’ said Jeremy Wrathall, head of global natural resources at Investec Plc. ‘It was a series of strategic errors, the collective madness of the super cycle where everyone got it wrong.’”

Bits Bucket for December 12, 2015

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