April 22, 2016

If You’re A Pig, Now’s The Time To Get Out The Lipstick

It’s Friday desk clearing time for this blogger. “The first three months of 2016 were not a good time to list your $15 million East Hampton home. A cool wind is blowing through the elite enclave, as Wall Street fears send a chill through a real-estate market that, until recently, has been white hot. The market was hit by a swift one-two punch at the start of the year: a slowdown in China and anemic oil prices caused the S&P 500 to suffer its weakest start to a year since 2009, and Wall Street bonuses—a major source of funding for high-end home purchases—took a blow, too. Hedge funds were coming off a dismal year and continued to bleed well into the first quarter, while lay-offs in the banking sector have continued apace.”

“All of this led the number of Hamptons home sales to tumble 19.2 percent in the three months through March year-over-year, according to a report published Thursday by real-estate company Douglas Elliman and appraiser Miller Samuel. At the same time, the median sales price fell 2.8 percent to $895,000 from a year earlier. Sales of luxury homes—anything listed for at least $4.05 million—fell 30 percent to 45 deals in the first quarter, according to the report.”

“Short sales and foreclosures increased in the Pittsburgh region through the first three months of 2016 and contributed to a slide in overall home prices in March according to Realty Trac. Pittsburgh banks may have wanted to unload them while interest rates remain low and the market heats up, said Daren Blomquist, vice president of Realty Trac. ‘I think banks have jumped through the regulatory hoops to make sure they’re proceeding with foreclosure correctly and now that they see the market is booming, they’re making hay while the sun shines,’ Blomquist said.”

“Pittsburgh banks seemed to be eager sellers. Bank-owned homes in the region sold for 61 percent below market rate, compared to an average discount nationwide of 40 percent. Many cities that saw increases in distressed sales were in judicial foreclosure states, including Pennsylvania, where foreclosures are handled in the court system and can take longer to complete. New York City, Buffalo and Boston also had more distressed sales from a year ago.”

“The Southwest Florida housing market continued to cool in March, as home sales declined by 8 percent over the year. It was the fifth month in the past six in which sales of existing single-family homes and condominiums failed to keep pace with the prior year, according to the Florida Realtors trade group. ‘Overall, statewide inventory levels essentially held steady in March,’ said Brad O’Connor, chief economist at Florida Realtors. ‘The active inventory of homes listed for over $1 million was up 18.3 percent year-over-year among single-family homes and 38.6 percent among condos and townhouses.’”

“While the multi-family market in Baton Rouge remains strong for now, a staggering number of new apartment units completed in 2015—with many more on the way in 2016 and 2017—will likely cause vacancy rates to rise and lease rates to fall. ‘All of the new inventory on the market is forcing property owners to offer more concessions to their tenants, including high-end amenities like the lazy rivers, rec rooms and golf simulators in some of the student housing complexes near LSU. It’s also prompting the owners of older complexes to start renovating them. ‘If you’re a pig, now’s the time to get out the lipstick,’ said Craig Davenport of Cook, Moore and Associates.”

“Calgary’s condominium sector has taken the hardest hit in a housing market gutted by the plunge in oil prices. The city’s condo sales are down 17% through 2016’s first quarter compared with a year ago, and average prices have plunged 12% from the 2014 peak to around $290,000. Meanwhile, nearly a fifth of Calgary’s downtown office towers have gone dark, condo starts have fallen 60% and residential foreclosures have soared 30% from two years ago.”

“Yet, from his Vancouver office, Mohammed Esfahani confirms he has pre-sold 140 condominiums at his luxury Park Point tower in Calgary in the past year, 10 in the past month, at an average of $610 per square foot. And it will be completed, Esfahani said, even in a city where panicked condo developers have slammed on the brakes. Calgary condo starts are down 60% from the 2014 peak, with about 4,800 units expected to start this year. ‘We have always completed everything we have started,’ Esfahani said.”

“The super-prime market in London may seem unreal and disconnected from the needs of Londoners, but it is completely reconfiguring the city, with over 300 towers under or awaiting construction across the city. Many of these are luxury apartments going up in privatised, gated enclaves, stretching from Nine Elms, around the huge new Battersea Power Station development and US Embassy quarter, to Southwark and Blackfriars.”

“Who is going to live in these places? Who are the figures populating the developers’ hoardings? Who can afford to live in these fantasy worlds? Particularly unpalatable is the link between local authorities, who should serve the public interest, and the gilded lifestyles these properties promise. This is where the PR companies who oil the wheels of this new globalised property industry come in, hosting champagne receptions for councils, developers and foreign investors property industry shindigs. At last autumn’s event at London’s Olympia, sessions aimed at local authorities included: ‘Are you sitting on an untapped goldmine?’ and ‘London – from social housing to super-prime.’ You couldn’t make it up.’”

“Hong Kong’s housing sales hit a 25-year low in February. The March figure, which came in early this month, doesn’t look good either. Prices are plummeting too. Centaline Property’s Centa-city Leading (CCL) Index, which tracks used-home prices in Hong Kong, has dropped 13% from September’s historical peak to its lowest level since 2014.”

“New home sales will continue to gain market share, Standard & Poor’s Esther Liu wrote in a February research note, because there is ‘ample supply in the pipeline’ and developers are cutting prices to get rid of inventory. New home sales accounted for 29% of total sales in Hong Kong’s home market in 2015, the highest since the SARS epidemic decimated the city’s housing market in 2003.”

“Auditor PricewaterhouseCoopers became the latest to sound the warning against debt risks at China’s banks. PwC noted that net profit growth at the country’s five main commercial banks fell to 0.69 percent last year, compared to growth of more than 6.5 percent in 2014. Cuts in interest rates, lowered six times over the past 18 months by the government to encourage lending and boost the overall economy — particularly the property sector — were seen as one factor in reducing banks’ revenues. But the potential risks of higher lending were highlighted by the fact that nonperforming loans (NPLs) at China’s 18 major listed banks rose by more than 48 percent, or some $146 billion, in 2015, PwC said.”

“PwC analysts warned there was a ‘high possibility that bad loans will surge further,’ with the significant growth in past-due loans likely to lead to more turning into NPLs, Chinese media reported. In January, new loans rose by a record 60 percent year-on-year, while the nation’s total outstanding loans — all those already issued — were up 14.7 percent by the end of March compared to a year earlier, at around $15.2 trillion, the Xinhua News Agency reported Thursday. Relaxation of rules governing housing loans and downpayments has led to a particular boom in the country’s property sector, with total property loans up 22.2 percent by the end of March, and those for individual home purchases up 25.5 percent at 15.8 trillion yuan (around $2.4 trillion).”

“Fraud is rife in the banking system as banks systematically fudge the numbers on loan applications to make borrowers look more creditworthy than they really are, according to an explosive submission to a Senate inquiry on white collar crime. The economists Lindsay David and Philip Soos argue that the practice, together with a dramatic lowering of lending standards, is responsible for a massive housing bubble and threatens the stability of the entire financial system.”

“But at some stage, they argue, an economic shock will expose the decline in lending standards and cause a loss of confidence in international markets, undermining Australian banks’ access to the cheap offshore funds they rely on to maintain their lending. ‘I don’t think that Australians realise the risks the banks have taken in order to get house prices as high as they are,’ Mr David said.”