January 8, 2016

Central Bank Policies Are Wholly Responsible

It’s Friday desk clearing time for this blogger. “The narrative in the mainstream media and from popular think tank organizations over the last several months is that San Francisco is dramatically ‘underproducing’ housing and that this is the reason for The City’s growing unaffordability. Here are some facts: San Francisco is currently experiencing its highest level of housing production since the 1960s’ Urban Renewal. Thousands more units are currently midconstruction, or have been approved and are simply waiting for developers to start construction. The truly important question is: Who can afford those homes?”

“Those who claim we are simply ‘underbuilding’ housing are off the mark. Though our current totals of housing production are at a historical high point, we are effectively overbuilding expensive market-rate housing in proportion to affordable homes for low-, moderate- and middle-income San Franciscans.”

“Manhattan home prices surged to a record in the fourth quarter, propelled by closings of luxury deals in new developments that were agreed to years ago. ‘This represents just how robust and, for lack of a better word, insane the sales market was circa 2013 and 2014,’ Jonathan Miller, president of Miller Samuel, said in an interview. ‘That strong demand was somewhat off the books — it wasn’t yet recorded.’”

“An analysis by StreetEasy last month showed resale prices for Manhattan’s most expensive homes have been declining since February as high-end inventory piles up. With all the new high-end development, luxury buyers now have more options so there’s ‘less urgency to buy this very minute,’ said Chief Executive Officer Pamela Liebman of Corcoran. ‘We’re seeing them taking their time and really being selective as to where they’re willing to put this enormous amount of money. There’s a lot of competition and it will be harder to push prices this year than it has for the past several years.’”

“Looking back over the last three years, 2014 was a revolutionary year in Watford City, making its stamp in western North Dakota history forever. In one year, from 2013 to 2014, the number of building permits issued increased by almost 100 percent! In 2013, the City of Watford City issued 263 building permits. And in 2014, the city issued 513 permits. ‘2014 was a historic year of construction,’ stated Watford City Mayor Brent Sanford. ‘More units were built in 2014 than were in existence prior to 2014.’”

“The City of Jacksonville is facing a problem it isn’t quite sure how to handle: hundreds of properties are currently either vacant or occupied by abandoned homes. ‘We have this huge number of in effect unused properties and a huge number of people that need affordable housing, how do we connect those two. Because that’s a significant issue that we need to resolve,’ City Councilman Bill Gulliford said at a committee meeting.”

“Drive through the neighborhoods of Ohio. You will observe thousands of vacant homes devoid of a generation of aspiring young homeowners. All across America, this story repeats itself. Millions of habitable homes sit unoccupied. Last year, more than 57,000 homes sat vacant in my congressional district alone. Just in October 2015, there were more than 5,300 homes in my home state of Ohio that remained on the market for nine months or longer. Those homes have a combined value of $1.9 billion. These under-invested assets represent a vast, untapped source of wealth creation for families and our nation.”

“Annual statistics show the number of houses for sale in Edmonton remained high, and so did the price tags. Ron Hewitt buys, renovates, and sells homes. The duplex he bought and renovated last year has been on the market since September. It still hasn’t sold. ‘When we were working on this place, we just thought that things were going really well,’ he said. ‘We were quite confident this was going to sell, and that hasn’t happened. So, of course, it’s very frustrating.’”

“iPads, rent-free periods and vouchers are being used as incentives to attract renters as lessors struggle to fill their investment properties in Brisbane. A two-bedroom apartment in Kangaroo Point, listed at $399 has offered a $300 Coles Myer gift card to the prospective tenant, an incentive Ray White South Brisbane rental manager Amy Hindes said stemmed from the supply of rental properties outweighing demand. ‘It’s the market - you just have to look around and see all the cranes - the amount of units in the area now,’ she said.”

“Ms Hindes said incentives were usually offered if the lessor decided not to lower the rental price. ‘We can suggest different ideas on how to rent the property. If they don’t want to reduce the price they can offer other incentives,’ she said.”

“Housing prices in Gurgaon fell by about 25% during last year but it was not sufficient to boost demand, according to property consultant JLL. The consultant noted that the past couple of years have been tough for Gurgaon’s real estate market. The primary reason for this scenario has been a slowing economy over the years, as well as sky-rocketing prices. Buyers were waiting for prices to fall, while investors who bought properties in the previous boom cycle of 2009-10 did not want to commit more money with no clear returns.”

“Overall, NCR has witnessed country’s highest unsold inventory figures at almost 1,70,000 units, of which around 22,000 units are in Gurgaon. With the liquidity crisis brought on by high unsold inventories, JLL said that the developers began offering freebies, discounts and all kinds of schemes to lure buyers. ‘While Gurgaon’s realty market favoured developers in the period 2010-12, it is now clearly a buyers’ market. Nevertheless, most buyers still see this market’s prices as unattractive,’ said JLL India CEO Ashwinder Raj Singh.”

“As China’s stock market crashes again, sparking fear in global financial markets, experts are speculating on whether the turmoil will inflate or prick Vancouver’s housing bubble. Faced with its own housing bubble and a rapidly slowing economy, China started aggressively devaluing its currency last summer. If local incomes can no longer afford Vancouver homes, it suggests that market turmoil in China should be impactful to local home prices, one way or the other.”

“Some business insiders and money managers who have been prescient about the current events in China predict the flood of Chinese money to Vancouver may have peaked in 2015, and could reverse. Seth Daniels, managing partner for the Boston hedge fund JKD Capital, advises against Canadian real estate to help his clients manage the risk of their homes plummeting in value. After China’s markets bounced last fall, Daniels correctly predicted a fresh currency devaluation and market crisis in China in 2016.”

“Daniels told The Province that as Chinese asset values are destroyed in a market rout there will simply be less money to send abroad. At the same time, the Chinese government is anticipating the reaction to its currency devaluations and clamping down on capital flight. Daniels added that luxury housing markets boosted by Chinese money, such as Hong Kong and Sydney, are already softening, and the same is expected in Vancouver.”

“A former citizen of China who works in a Vancouver import-export business predicted China’s early-2016 yuan devaluation to a Province reporter. The man, who did not want to be named, said he has done import deals with one of the big-name B.C. suspects on China’s Operation SkyNet anti-corruption list. The Vancouver importer said the feeling in his line of work is that the flow of big money from China to Vancouver has already occurred, and the stream will slow in 2016.”

“Billionaire financier George Soros is warning of an impending financial markets crisis as investors around the world were roiled by turmoil in China trade for the second time this week. Marc Ostwald, a strategist at ADM Investor Services, believes that Soros’ comments — alongside a gloomy report Wednesday from the World Bank — only serve to cast a ‘long shadow’ over global markets.”

“‘It should be noted that the current turmoil distinguishes itself from 2008, when reckless lending, willful blindness to a mountain of credit sector risks and feckless and irresponsible regulation and supervision of markets were the causes of the crash, given that central bank policies have been encouraged and been wholly responsible for the current protracted bout of gross capital misallocation,’ he said.”

Bits Bucket for January 8, 2016

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