December 18, 2015

In Short Janet, It’s Too Late!

It’s Friday desk clearing time for this blogger. “The Federal Reserve, under Janet Yellen, waited too long to raise rates if she wanted to avoid another meltdown in the global financial system, Societe Generale strategist Albert Edwards said. In a research report entitled Fed negligence … again!, Edwards said the current Fed chief was cut from the same ‘over-confident’ cloth as her two immediante predecessors, Alan Greenspan and then Ben Bernanke. ‘Similarly I think the Yellen Fed will go down in infamy as deliberately stoking up yet another massive financial bubble,’ the strategist wrote to clients. He emphasised that credit growth had already reached peak historical rates. ‘In short Janet, its too late!’”

“The Hong Kong Monetary Authority raised its base rate for the first time in nine years, following the U.S. Federal Reserve’s lead overnight, and flagged the risk of rising capital outflows from the city. The monetary authority had held its rate at a record low since 2008, tracking the Fed as the U.S. brought its benchmark down to near zero to combat the financial crisis. Rising borrowing costs are set to weigh on the city’s real estate market, said Trinh Nguyen, senior economist for emerging Asia at Natixis.”

“‘Hong Kong interest rates will gradually rise, in line with the Fed’s,’ she said. ‘Obviously, the housing market will feel a pinch from this, not a good trend considering there’s already a downturn of retail sales in the city.’”

“The Norwegian central bank is facing a monetary policy dilemma as concerns about a possible housing bubble are conflicting with economic weakness in response to the continuing decline of oil prices, analysts said. Norges Bank said last week it expects the economy to remain stagnant for the next six months after the economy recorded a zero percent growth rate in the period from August to October. While central bankers seem a long way from considering a hike in interest rates, fears are rising that the current monetary conditions are fueling bubbles elsewhere in the economy.”

“‘The Norwegians are right in the middle of this pack of countries where you’ve got these globally low interest rates and they are frightened of raising interest rates because of what it’ll do to the exchange rate,’ said Bill White, a former economic advisor at the Bank for International Settlements. ‘But then they look at the housing sector and they realise debts are at unprecedented levels and people are talking about mortgages left and right because they are so cheap.’”

“With its million-dollar suburbs (59 at the last count), and record housing prices, Auckland’s property market is still sizzling hot. And encouraged by record-low ­interest rates and ever-increasing valuations, it’s ‘keeping up with the Joneses’ on steroids, as banks happily ­furnish those on large incomes with the ­mega-mortgages needed to fulfil their big dreams. Jane lives in a spacious Pt Chevalier property that is valued at $1.5 million. She has a well-paid job but ­daily life is a constant struggle. ‘I worry about money all the time,’ she says. ‘But the house is a great ­investment so I want to keep hold of it.’”

“Jane, who did not want her full name used, has separated from the father of her child, but has financial assistance from him and flatmates to help with the household costs. But it’s not an easy road. ‘The money invested in this place is my child’s inheritance. I could downscale but I feel it’s much more secure for us to have the money ­invested in property. So I hope I find a job that pays more than what I currently earn.’”

“If you live in Melbourne or Sydney you probably feel you are being swept up in a massive property tornado that is pushing prices into the stratosphere. There are a number of factors at play which will change the housing equation, including investors deserting the market following moves by regulators to frighten them off by forcing banks to charge higher interest rates. Sally Tindall, from comparison site, said the continued drop in investor lending over the past three months provided unequivocal evidence that differential pricing for home loans was having an impact on the market. ‘What started as a small drop (after the regulatory changes), has turned into a downpour,’ Ms Tindall said.”

“The tightening of regulations restricting foreign nationals buying established properties is also likely to be affecting prices, said Research house BIS Shrapnel’s residential property director Angie Zigomanis. The two measures combined mean ‘the last bidder might be taken out of the market,’ he said.”

“The spectre of oversupply has emerged, driven by a massive wave of apartment projects hitting the market. In 2014/15 a record 210,000 new dwellings were completed, easily bettering the previous record of about 180,000. In 2015/16 another 200,000 properties will be completed. The effect of this is amplified by a cut in migration. Apartment rents are under pressure with vacancy rates at three per cent and expected to climb in Melbourne. Brisbane is also feeling the pressure with a ‘huge number of apartments being built in the inner city,’ Mr Zigomanis said.”

“Red flags are being thrown up across Alberta. Already, unemployment has spiked and the housing market has tanked. Prospects for the latter have actually grown bleaker, with fears that Calgary and Edmonton could become collateral damage in Ottawa’s attempts to hold down property values in Vancouver and Toronto. And now, the Bank of Canada is warning that there are uncomfortably high numbers of Albertans juggling oversized debts.”

“Ottawa is raising the minimum down payment to 10 per cent from 5 per cent on new government-insured mortgages for the portion of a property’s value between $500,000 and $1-million. ‘These price categories represent fairly big chunks of activity in both markets,’ RBC senior economist Robert Hogue said, referring to Toronto and Vancouver. ‘Unfortunately, these price categories also represent a substantial share of Calgary’s market,’ he added.”

“Construction workers in downtown Los Angeles are racing to finish Metropolis, the biggest mixed-use development on the West Coast, but some of the buyers probably won’t be spending much time living there. ‘They have been very successful at selling to Chinese buyers,’ said Pin Tai, President of Cathay Bank.”

“Less attractive is Chinese buyers’ tendency to be absentee owners. The same National Association of Realtors survey showed only 39 percent of Chinese homebuyers plan to use their U.S. property as their primary residence. That means there are a lot of part-timers and investors looking for a place to park their assets, something increasingly common in Manhattan and London, which some have called safety deposit boxes in the sky. Empty condos can bring property values down, said Dominic Ng, the CEO of East-West Bank. ‘I always advise my bank clients to make sure 80 percent of the residents are going to stay there full-time, because what you don’t want to do is create a ghost town,’ said Ng.”

“The percentage of cash transactions in the Miami residential realty market has trickled down over the past three years. Ben Moss, a broker with ONE Sotheby’s International Realty warned, when it comes to the number of financed homes, there’s more than meets the eye. Luxury buyers often choose to pay cash to receive the most favorable price tag. ‘Sellers will always prefer cash,’ Mr. Moss said. However, after putting down the cash, buyers will often wait six months and then go after a loan. ‘I would bet that a great majority of people are paying cash but going ahead and refinancing after the purchase,’ Mr. Moss continued. A majority of his clients are doing so, he said.”

“In the new condo market, buyers are doing something similar. Although the 50% deposit structure requires cash up front, many buyers will finance the remainder of the deal, said Carlos Melo, principal of the Melo Group. ‘Sometimes they have the money to pay cash, but at the end of the day they prefer to take a loan and buy something else,’ he said.”

Bits Bucket for December 18, 2015

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