The Housing Bubble

A report from Bloomberg on China. “From the Dutch tulip craze of 1637 to America’s dot-com bubble at the turn of the century, history is littered with speculative frenzies that ended badly for investors. But rarely has a mania escalated so rapidly, and spurred such fevered trading, as the great China commodities boom of 2016. Over the span of just two wild months, daily turnover on the nation’s futures markets has jumped by the equivalent of $183 billion, outpacing the headiest days of last year’s Chinese stock bubble and making volumes on the Nasdaq exchange in 2000 look tame.”

“What started as a logical bet — that China’s economic stimulus and industrial reforms would lead to shortages of construction materials — quickly morphed into a full-blown commodities frenzy with little bearing on reality. As the nation’s army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu.”

“It’s the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China’s policy makers flood the financial system with cash to stave off an economic hard landing. ‘You have far too much credit, money sloshing about, money looking for higher returns,’ said Fraser Howie, the co-author of ‘Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.’ ‘Even in commodities where you could have argued there is some reason for prices to rise, that gets quickly swamped by a nascent bull market and becomes an uncontrollable bubble.’”

The Independent in the UK. “The housing bubble has burst, analysts have said, after sellers started slashing money off their asking prices and accepting offers up to 10 per cent less than the property was listed. The North of England is home to eight of the ten areas with the highest proportion of houses selling for lower than before. Almost half of all properties listed in St Helens (43.7 per cent), Hartlepool (42.5 per cent) and Middlesbrough (40 per cent) having been marked down. Also in the top 10 are Haverfordwest in Wales, and Great Yarmouth in East Anglia.”

“Henry Pryor, a housing analyst, said he had worked through three property recessions and that this market has a frighteningly familiar feel to it. He noted that estate agents are making fewer sales at the top end of the market, prices in London are up to 15 per cent off their asking price and lenders are turning to riskier financial products, like the 100 per cent mortgage announced by Barclays, to make sales. ‘I think [the housing bubble] has popped,’ he said. ‘These are all warning signs that we have reached the top. This is ‘peak property,’ Pryor told The Independent.”

Azer News in Azerbaijan. “Residential rents are continuing to fall in many areas of Baku amid the ongoing drop in house prices, a consulting company said Nusret Ibrahimov, CEO of consulting company MBA Group. ‘Following the manat devolution in late 2015, many landlords have tried to raise the price of housing in the national currency, or to transfer it in the dollar equivalent, but bulk of them failed. Then, house rents in Azerbaijan, mainly in Baku decreased in terms of the national currency, the manat,’ he said.”

“This trend will continue and wave-like price cuts will be seen until the end of summer, Ibrahimov believes. ‘Strong decrease is seen in the price of expensive apartments. A year ago, one-bedroom apartment rented for 800-850 manats ($532-$565) in the city center, while today the figure is 400-500 manats ($266-$332). For two bedroom apartments, the figure was 1,300-1,500 manats ($864-$1,000) and now it stands at 700-800 manats ($465-$530), ‘the expert explained. The most expensive luxury housing was previously offered for 10,000-12,000 manats ($6,647-$7.976), but now it costs 5,000 manats ($3,323).”

The Business Standard in India. “Free office space with an apartment, free maintenance services, free package for summer holidays along with a maximum discount of Rs 21 lakh — these are among the schemes that developers have rolled out in Delhi-National Capital Region to attract buyers in a slow market. There has been a mismatch in the demand-supply in the property market as developers are sitting on huge inventory.”

“‘Despite stagnant prices, sales have not picked up well. Only in select locations, with few developers having backing of a big corporate house are able to sell their units,’ a Mumbai-based consultant said.”

ABC News in Australia. “The number of available rental properties on the market in Perth has reached unprecedented levels, with 10,200 houses and units available for renters, new figures show. The oversupply of available rentals is putting downward pressure on prices, with the median rent down to $395 per week for the three quarters to the end of March. Activity remained slow across the Perth property market, with sales volumes down 40 per cent from the December quarter to the March quarter.”

“Real Estate Institute of Western Australia president Hayden Groves said the number of available properties available on the rental market was at a level never seen before. ‘It really is quite startling,’ Mr Groves said. ‘We are seeing rents fall, they will perhaps fall for the remainder of 2016 by a very small margin and that’s mainly because our population growth has changed so dramatically. Tenants certainly have the rental market in their favour at the moment.’”

The Calgary Herald in Canada. “Prices have been dropping for seven straight months but the decline hasn’t been enough to lure buyers back to the market in any noticeable way, says the Calgary Real Estate Board. Its year-to-date data show detached home sales are down four per cent, while apartment sales and attached home sales are down 19 and 13 per cent respectively during the same period. Average prices actually rose for the month, climbing to $476,427, up 1.5 per cent. But, according to the board, the benchmark price — the price of a typical Calgary home — was down 3.4 per cent from April 2015, to $441,000.”

“Since prices started dropping seven months ago, apartment prices have declined 7.6 per cent, while detached homes are off 4.1 per cent. ‘From re-considering the listing of their home to lowering expectations on price, sellers are beginning to adjust to the current market reality,’ CREB president Cliff Stevenson said. ‘Some buyers in the market are still not willing to pull the trigger because they expect even bigger discounts.’”