The Housing Bubble

Realtor.com reports on California. “To its neighbors in the San Francisco Bay Area, the city of Vallejo, CA, has long been known for several things. There was the notorious bankruptcy in 2008. There was the ignominious honor of ranking No. 9 on the Forbes list of Most Miserable Cities and No. 2 on Newsweek’s of Dying Cities in the same year (2011). There was the abandoned Mare Island Naval Shipyard, the violent crime, the squalor, the shuttered homes, the hopelessness. One thing Vallejo was not known as: the next trendy place for Northern Californians to buy a house and raise a family. The Mare Island Brewing Co., which opened in 2013, is doing so well that it plans to break ground on a larger facility on the island this fall.”

“‘Our taproom is so busy that we can’t keep up,’ says Kent Fortner, the microbrewery’s founder/owner and a proud Vallejo resident. He’s seeing an influx of refugees from other, pricier Silicon Valley hubs. ‘It’s headed upward. You can feel it,’ says Fortner. “Everybody I know is relandscaping their lawns, doing a small remodel … or they’re actually thinking of buying a second home on the island as an investment to rent out.’”

The Merced Sun-Star. “The number of housing starts in Merced County more than doubled in the first half of 2016 compared with last year, the biggest such increase in the central San Joaquin Valley, according to Metrostudy. The Westside is seeing even more interest from developers as the Bay Area is short on available housing, which is also considerably more expensive than Valley living. ‘The same exact home being built in Hollister is literally half (the price) in Los Banos,’ Los Banos’ senior planner Stacy Souza Elms said.”

“That side of the county was in a similar predicament before the bottom of the market fell out.”

From CNBC. “The housing market in Silicon Valley is ‘looney-tunes,’ real estate broker Fred Glick said. That’s because it’s all about supply and demand, with people flooding to the area from around the world. ‘We just keep adding people like crazy and we can’t get enough supply. That’s why people have to share houses. That’s why renters know that they have to pay an exorbitant amount of money,’ the CEO of real estate brokerages Arriva and U S Spaces said.”

“One thing that won’t impact the market will be if mortgage rates rise, he said. ‘Mortgage rates don’t matter because the way it is, you are thrilled to be a mortgage,’ he said, noting that it is a nightmare getting mortgages approved. ‘If the rates go up, people take a five-year ARM instead of a 30-year fixed,’ he said.”

The San Francisco Chronicle. “Last year, as anyone looking for an apartment knows, we saw huge rent increases, with double-digit jumps throughout much of the Bay Area. But 2016 is a different story, with an average rent growth of only 3.7 percent projected for the San Francisco metro area this year, according to research from AppFolio. after years of slow apartment development, San Francisco is actually expecting to see over 9,000 new units come to market in 2016, according to research from RentCafe. That boosts rental inventory by 126 percent over 2015’s numbers, according to the rental site.”

“AppFolio’s VP for Product, Nat Kunes pointed to data from earlier this year showing that Class A rentals (the buildings with rents at the top 20 percent of the market) in the city started their downward trajectory last summer, and bottomed out with actual rent decreases at the end of 2015. They are now up slightly, but Class A rentals in San Francisco are still well behind their less-expensive counterparts in rent growth.”

“That is a very interesting trend, especially given that most of these Class A rentals do not fall under the city’s rent control laws because the vast majority were built after 1979. ‘Additional supply at the top of the market is one factor behind the overall slowing of rental growth,’ Kunes said.”

“That being said, Foley points out that about a third of the San Francisco market is not willing to pay any more money for their apartments, which may account for some of the softness in the market as well. ‘Despite living in one of the hottest and most competitive rental markets in the country, one in three renters are willing to roll the dice with looking for a new apartment or simply giving up the bright lights and big city,’ he said.”

The Mercury News. “Faced with famously high prices and a tight housing supply, homebuyers grew shy last month. Across the Bay Area, single-family home sales in July fell 13.4 percent from the year before — the fifth consecutive month of year-over-year declines in the number of houses sold. ‘The market is slowing,’ said Andrew LePage, research analyst for CoreLogic.”

“The picture was similar on the Peninsula and in the East Bay: For the sixth straight month, year-over-year sales fell in Santa Clara, Alameda and San Mateo counties, where home sales were down 14 percent, 12.1 percent and 3.6 percent, respectively. In Contra Costa County, sales declined for the fourth consecutive month, and were down 16.9 percent. ‘Four, five and six months in a row — that starts to make a trend,’ LePage said.”

“For much of the Bay Area, July prices were down from the previous month. While a short-term change doesn’t necessarily signify a trend, many experts agree that the market has softened in recent months.”

“‘The market is in a bit of a transition,’ said Kim Ott, president of the Bay East Association of Realtors. ‘Sellers should still be in good shape as long as their agents are educating them: ‘Expect your home to be on the market for a longer period of time. … Do not expect multiple offers.’ We need to be conservative when we price the house. We can’t go aggressively high, because it’ll just sit there.’”

“Pleasanton-based agent Steve Mohseni, of Mohseni & Associates, has observed a new dynamic after years of frenzied bidding. ‘There’s a tug of war between the buyer and the seller. Due to this slowdown, buyers feel that the market is shifting and want to get a discount,’ he said. ‘But sellers still feel they should get their 10 percent over asking. It’s creating a gridlock.’”

The Global News reports from Canada. “Global News obtained MLS sales data from several key Metro Vancouver markets and found the number of homes sold during the first two weeks of August in Greater Vancouver dropped by 85 per cent on average. Richmond experienced a 96 per cent drop in the number of sales and Burnaby North fell by 95 per cent. Vancouver’s West Side, West Vancouver, and Coquitlam also took major hits. East Vancouver’s Nina MacDonald echoes that belief telling Global News she hasn’t had any nibbles on her $1.28 million, 59-year-old bungalow on Napier Street that she’s owned for over 20 years. She’s even cancelled an upcoming open house because she felt like it would be pointless.”

“She initially wanted to sell because the real estate windfall would allow her to purchase a turnkey property and pay the down payment on houses for her grandchildren. ‘I went from having a phone call every day [from realtors] to not having any,’ she said.”

Bloomberg on China. “Chinese policymakers have resorted to traditional levers to juice the economy this year: investment, public-sector spending, and monetary expansion. But there are growing signs the property market has slowed down, while imbalances in the sector are growing, according to analysts.”

“Bloomberg Intelligence analysts suggest policy makers face significant headwinds in addressing imbalances in the sector in the months ahead. ‘China’s property sector may deliver the worst of both worlds: a speculative top tier that churns existing apartments without generating new construction, and moribund second and third tiers that leave the market swamped in unsold apartments.’”

The Korea JoonAng Daily. “By 2019, the property market is expected to face an oversupply of up to 670,000 residential units. Budongsan 114, a real estate information provider, estimates market supply in the next three years will total 1.65 million residential units. However, the government says demand will only reach 1.16 million units.”

“‘The aftermath in areas where there has been huge interest by potential homebuyers due to favorable factors [that help apartment values rise after purchase] such as KTX and industrial development will be severe if the population moving in the area doesn’t meet its potential [resulting in a large number of unsold apartments],’ said Kwon Dae-joong, a real estate professor at Myongji University.”

From Leadership Nigeria. “The fact that no economy can develop without a successful private sector has made the lingering glut in the nation’s property market more worrisome. The bleak outlook of the housing sector has further threatened the survival of the businesses of housing developers and realtors in the country. The nation’s two distinct arms of private sector are in business either to make money by adding value to the country’s economy or to make money at the expense of the society have been churning out housing units in different parts of the country.”

“In highbrow areas in Lagos like Ikoyi, Victoria Island and Lekki which over the years has been the toast of the super-rich and choice areas for expatriates most properties there now carry the ‘to-let’ or ‘for sale’ tag and the tag has been on them for months or years with one asking questions about the properties. Beyond Lagos, Abuja the nation’s Capital Territory is not exempted from the glut. Although it is often described as one of the fastest-growing cities in the world, most of the houses and estates in high-brow areas like Asokoro, Gwarinpa, Maitama, , Wuse II, Utako, Katampe districts are unoccupied years after completion as a result of the high cost of renting or leasing.”

“LEADERSHIP checks showed that houses and estates in Gaduwa, Apo, Dei-Dei, Gwarimpa, Lugbe, Kubwa, Gudu, Life Camp, are also in economic limbo as a result of no buyers or renters. Not amused by the bleakness portended by the prevailing situation, the chief executive officer, FESADEB Communications Limited, Festus Adebayo said most of those who built the estates not occupied in Abuja particularly are looking for buyers, but cannot get buyers.”

“Adebayo reasoned that, ‘they cannot get buyers apparently because the houses are not affordable; obviously, the purchasing power has gone down. When a two-bedroom apartment is put at N14 million, how can it be affordable, and even when you are asked to pay 20 per cent or 30 per cent of the amount, it is still not easy for many people to afford.’”

“‘The danger is this; these too many houses that are standing without buyers due to lack of purchasing power, the prices of houses may crash. According to simple law of economics, when the supply is high and demand is low, prices will be forced to crash. Some of the owners of those estates that are not being occupied got the money from somewhere.’”

“‘I must be very candid, it is not all of them that are public treasury looters, and some got the money from banks, so they cannot continue to hold the banks’ money, considering the high interest rate while the houses are standing. So, I foresee prices coming down.’”