March 4, 2016

It Is Bubble-Like Again

It’s Friday desk clearing time for this blogger. “Rising home prices are bringing more house flippers out of the woodwork, and that may be a sign of an overheating housing market. The number of active home flippers last year was the highest in nearly a decade, and it is only growing. Home flipping can push prices artificially higher, especially in markets with the tightest inventory. ‘When home flipping numbers go up, it is usually an indication that the housing market is in trouble,’ said Matthew Gardner, chief economist at Windermere Real Estate in Seattle, who was quoted in the RealtyTrac report.”

“The Bay Area has seen great growth in recent years from jobs to housing prices, but some economists say the tech industry is due for an economic correction. Some are going as far to say the tech bubble is about to burst. ‘It does remind me of the Dot-Com Boom,’ said Cynthia Kroll, the Chief Economist of the Association of Bay Area Governments, about the recent boom in technology. ‘I didn’t want to use the word ‘bubble’ but the valuations got so extreme over the last couple of years that it is bubble-like again,’ said Kenneth Rosen, Chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley.”

“The Victoria market is seeing some buyers paying $100,000 or more above asking prices for single-family houses in desirable neighbourhoods. Multiple offers. No conditions. Buyers cashing out in Vancouver to live here. Purchasers from China. These are all commonplace as the capital region’s already-hot housing market flares up and inventory tightens. Wealthy buyers from China are snapping up Greater Vancouver homes, driving up prices. In turn, Vancouver buyers are cashing out by selling their homes and heading over to the Island to buy a home of equal quality for half the price.”

“‘They are not afraid to fight. Multiple offers (in Vancouver) are expected on everything,’ said Jason Binab, with the Engel and Völkers real estate firm in Victoria.”

“Wang Xin was close to buying an apartment in downtown Beijing for 3.3 million yuan (500,000 U.S. dollars), but the home owner raised the price by 20,000 yuan at the last minute. Wang agreed to pay the extra money, but the deal fell through anyway. The home owner went with an estate agent, who promised to sell the apartment for 470,000 yuan more. Wang tried to persuade the owner to honor the deal, but was locked out of the realtor’s office. This dramatic turn of events all happened in less than half an hour.”

“Similar episodes have taken place over the past month in China’s big cities, most in the east, where home buyers wait outside developers’ sales offices overnight to snap up new homes and home owners call prospective buyers and sales agents to raise the price by the week, days, or even hours. Home prices jumped 52.7 percent in January from a year ago in the southern boomtown of Shenzhen. One agency provides credit up to 20 percent of their deposit without any collateral. The money was raised through peer-to-peer lending investments that promise 8 to 12 percent annualized return.”

“This has enabled many to purchase homes that they otherwise could not afford. The results, many in the industry say, would be the return of more speculative demand, pushing home prices to frothier levels. ‘There are signs that speculative demands are back again, pushing up home prices with easy credit,’ said Wang Feng, a real estate analyst based in Shenzhen. ‘While authorities need to provide ample credit for real mortgage demand, they should be aware of any attempts to seek leverage to speculate in the property market.’”

“While a recovery may be some way off, Perth property is cheap now relative to the record prices on the east coast of Australia. This is the right time for cashed-up Chinese investors that have favoured the overheated markets of Sydney and Melbourne to snap up deals, according to LloydJenkins, a nearly 30-year veteran of the real-estate industry. ‘The market starts in the so-called nerve centre of Australia, being Sydney, and it works its way until yield compression gets to a point that it’s not worth playing; then they move north to Queensland and then eventually they cross the Nullarbor,’ Jenkins said, referring to the flat desert plain that west-bound travellers cross to reach Western Australia.”

“Jenkins’s optimism has yet to be reflected in a property market reeling from the end of the mining boom. Prices soared 18 per cent from the end of 2008 to a peak in December 2014 as the resources-rich state attracted a flood of workers to mines in the Pilbara region, one of the world’s biggest sources of iron ore, to meet Chinese demand for commodities. A slowdown in China has since depressed oil and iron ore prices, and mining and energy companies from the giants of BHP Billiton Ltd to the juniors of BC Iron Ltd are cutting jobs. Perth dwelling values in October dropped to the lowest since June 2013. Rents have decreased 9 per cent in the past 12 months and vacancy rates are the worst across the nation, according to Reiwa.”

“More clouds have gathered over the capital’s property market after a leading investment bank said the price of new, upmarket London flats could fall by as much as 20% this year. Trevor Abrahmsohn, head of agent Glentree International, said: ‘Asian buyers — from Malaysia, Singapore, Hong Kong and China — are walking away from their commitments to buy properties in, for instance, east London and Nine Elms. They would rather lose 10% than complete the purchase and lose a lot more, even before the developments are complete. The changes to buy-to-let tax is the ‘straw that broke the camel’s back’.”

“He added: ‘In pockets of London’s newly developed areas, where there is a lot of speculative development, the outcome could quickly turn nasty with buyers drying up, developers having to cut prices and investors dumping their newly acquired flats before construction of them has even finished.’”

“Hardly a day has gone by in 2016 without headlines about turmoil in the world’s financial markets and struggling economies. Yet these days, it’s not just brokers on Wall Street who have their heads in their hands but also those in the New York City real estate market. Welcome to the realities of the global economy. Adapting to the new global age, developers have in recent years aggressively courted wealthy buyers from Canada, Norway, Asia, the Middle East and Russia.”

“Indeed, Manhattan’s luxury condo market is already in a slight swoon amid a supply glut. A recent StreetEasy report found that luxury sales prices peaked in May 2015 and have fallen every month since. A number of developers have actually dropped their sellout price projections for new construction buildings. An aversion to risk in the global bond markets has caused new CMBS issuance to slow down significantly in early 2016. ‘There’s no stability in the market, it’s just so hard for people to price loans,’ said Kellogg Gaines, a managing director at JLL. ‘It’s hard to take the dive and commit to doing a loan that may lose money within a few weeks.’”

“Deflationary tides are lapping the shores of countries across the world and financial bubbles are set to burst everywhere, Vikram Mansharamani, a lecturer at Yale University, told CNBC. ‘I think it all started with the China investment bubble that has burst and that brought with it commodities and that pushed deflation around the world and those ripples are landing on the shore of countries literally everywhere,’ the high-profile author and academic said at the Global Financial Markets Forum in Abu Dhabi.”

“Mansharamani said that financial bubbles had been fueled by ‘cheap money’ created by highly accommodative monetary policy across developed economies. ‘I mean, we’ve got a bubble bursting, I would argue, in Australian housing markets — that is beginning to crack; South Africa — the whole economy; Canada — housing and the economy; Brazil. We can keep going on and on,’ the academic told CNBC.”

“The last time Tina Jackson and her husband Mike put a house up for sale, Saskatoon’s real estate market was ‘going crazy.’ Their home was viewed 12 times in the first three days before selling for above the asking price on the fourth day. Eight years later, the couple is now learning what it’s like to sell a house in a buyer’s market. ‘Nothing. Nobody’s come to look at it … Nobody’s called. I’m not really sure (why),’ Tina Jackson said of the two-storey, three-bedroom Westview house, which she and her husband bought in 2008 for $350,000 and listed for $399,000 on Feb. 1.”

“The Jacksons are not the only people in Saskatoon struggling to sell their homes. ‘I know some people that are listing their houses under market value just to sell it, and they’re going to lose money,’ Jackson said, adding that while she and her husband have already slashed their asking price by $10,000, they haven’t considered selling at a loss or boosting the property’s appeal with expensive improvements. ‘Hanging tight for right now,’ she said. ‘I’m sure we’ll have to consider another price drop at some point, but (we’re) not ready for that quite yet.’”

Bits Bucket for March 4, 2016

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