The Housing Bubble

A report from CBC News in Canada. “There is no denying a wave of fear and loathing has hit Vancouver’s ebullient market in the wake of the provincial government’s tax on foreign buyers. Data collected by realtor Rob Chipman shows that not only sales but average prices seemed to be falling. The real estate board’s actual figures released Friday showed exactly that. Sales in Greater Vancouver fell in August by 23 per cent from the previous month and were down 26 per cent from August last year. The average price for a detached home plunged by almost $300,000 in a month to $1,470,265.”

“Fear may make speculators, especially those in debt over their heads, want to sell. But when markets are on the way down, potential buyers are hit by loathing, not wanting to be the ones left holding the baby as prices fall further. Leverage — buying on borrowed money — which propelled markets to new heights, goes into reverse.”

The Business News Network. “For RateSpy.com Founder Rob McLister, the biggest surprise was that ’scary’ drop in average home prices. ‘There is so much psychology driving this market. This 15 per cent foreign homebuyers’ tax is just a kick in the face,’ McLister told BNN in an interview. ‘This was not the time for this intervention.’”

“Realtor Steve Saretsky has already crunched MLS data for the month of August and he said sales of detached homes dropped 50 per cent in Richmond, Vancouver and Burnaby compared to the average number of sales in August between 2010 and 2014. He left August 2015 out of his calculation because it was an abnormally hot month.”

“Prices haven’t appeared to drop drastically since the introduction of the tax, said Saretsky, adding that he believes the levy has had more of an impact on local buyers who are waiting to see how prices are affected. ‘I actually think it took a lot of the demand on the local side out, not so much the foreign side,’ he said. ‘Nobody wants to buy in at the top of the market, so everyone is thinking this could be the thing that changes everything.’”

From CTV News. “Vancouver realtor Paul Eviston doubts the foreign buyer tax is entirely to blame for the lower sales numbers. Eviston said the market was showing ‘clear signs’ of cooling in terms of sales volume in June and May, and sellers have adjusted their expectations. ‘They’re realized we’re not in the same market we were in the spring,’ he said. ‘I think a lot of sellers have adjusted their expectations and selling prices to reflect what’s happening.’”

“He believes there was a ‘knee-jerk reaction’ after the tax introduction, but that in the long-term foreign buyers will accept the extra cost is ‘the cost of doing business in Vancouver.’ With a Vancouver market mired in uncertainty, the longtime realtor says this ‘is probably one of the best buying opportunities we’ve seen in the last 10 years.’ ‘For all the people that were complaining about affordability issues in Vancouver, take a hard look around to see what homes are listed at and remember this: The market won’t stay like this,’ he said.”

The Vancouver Sun. “For real estate consultant Ross Kay, figures like benchmark prices and year-on-year sales comparisons obscure what’s truly happening in Vancouver: the rapid deflation of an overvalued market that had been propped up by foreign buyers. Take the benchmark price, a statistic that tracks sale prices of ‘typical’ homes picked for things like age of the building, square-footage, number of rooms, and other factors. ‘Your benchmark price trails what is really going on in the market by up to eight months,’ said Kay, who is based in Ontario.”

“A better measure, he believes, is average price. According to the real estate board, the average price for detached houses in Metro peaked in January at $1.83 million, but has since fallen to $1.47 million, a drop of nearly 20 per cent. Across all housing types, average purchase prices have fallen by 26.3 per cent since the first quarter of 2016, according to Kay. ‘(It’s) the greatest single drop in Canadian history,’ he said. But, ‘I don’t like to set off panic either, because I know the damage that is done to poor old average homeowners in these cases.’”

“The real estate board also likes to talk about the ratio of sales to active listings, which is said to measure the balance of the market. That figure is calculated by comparing the total number of sales in a month by the number of listings on the Multiple Listing Service at the end of the month. For August, there had been 29.3 sales for every 100 listings on the MLS at month’s end, which the board says is a sign we’re still in a seller’s market and prices will continue to rise.”

“Kay prefers to look at the failure rate, which takes into account all of the listings available in the whole month, instead of just the listings at one point in time. Using those numbers, he calculated that 80.39 per cent of all homes on the Vancouver market last month failed to sell. ‘Only one in five was successful. In March, when your market was hot, 36.7 per cent were successful — double. That’s how much your market has collapsed,’ he said.”

A weekend topic from the REIC, starting with Yahoo Finance. “Wealth generates wealth, especially now, in an economy that has been rewarding people who own stocks and other financial assets a lot more than people whose income comes primarily from working. And new research shows that wealth inequality is growing in the housing market, just as it has been growing in the broader economy. Real-estate research firm Trulia recently found that homes in the highest-priced cities have appreciated far more than homes in lower-priced cities during the last 30 years. That means people who can afford to buy homes in the costliest cities earn a far higher return on their investment than people who buy in cheaper cities.”

“San Francisco is the nation’s most expensive market, and the median home price rose from $161,000 in 1986 to $1.06 million today. That’s a gain of $898,000, or 558%. A theoretical family that bought such a home 30 years ago and sold today would have added nearly $900,000 in wealth, which could be invested elsewhere or passed onto children.”

“In Dayton, Ohio, at the other end of the scale, a median-priced home appreciated from $51,000 in 1986 to $103,000 today. That’s just $52,000 in new wealth, or a 101% gain.”

“But cities with high home prices—which include northern and southern California, New York, Seattle and Boston—tend to be cities with high income growth, which means they’re America’s most vibrant microeconomies. Such urban areas also tend to have limited land on which to build new homes, which limits supply and pushes prices up. Moving to such a place doesn’t mean you’ll automatically become more prosperous. But if you’re there and you can muster the wallet to buy a home, you’ll have a leg up on building wealth (assuming the trend of the past 30 years continues).”

The Newnan Times-Herald in Georgia. “The downtown’s first new residential construction in 30 years is complete and on the market, but casual observers’ initial reaction to the asking price leaves some scratching their head. The townhomes on the corner of Perry and Madison Streets are offered for $495,000. According to Zillow, the median price of homes currently listed in Newnan is $229,900, which puts the homes almost $300,000 above average.”

“McKinney & Son Builders Inc. began construction on the townhomes earlier this year and contractor Mac McKinney said that he believes there is a need for more residential housing in downtown. McKinney’s daughter, Evan, is a real estate agent and will be listing the home. She realizes the prices are in the higher end of the market for downtown Newnan, but she believes being the most recent new construction in the area and the low maintenance is what helps set the price.”

“‘This means no yard to cut, no constant upkeep, painting, and updating, and replacing broken systems as you would have in a historic home,’ Evan added. ‘These have a one- year builder warranty, and the buyer gets a beautiful home, walking distance to restaurants, nightlife, and the shops of downtown Newnan.’”

The Coeur d’ Alene Press in Idaho. “No matter what price range or neighborhood your real estate is in, pricing is critical to affect a quick sale. Often sellers do not want to accept that their property may not be worth what their agent is telling them so will cajole the agent to ‘just try’ a higher price than originally recommended. This is a dangerous practice.”

“When potential buyers see your overpriced property they will dismiss it as overpriced. Not everyone loves to negotiate. So, contrary to popular belief, a buyer may choose to walk away rather than making an offer lower than the asking price. This is especially true if they have lost other properties due to competition. A new study reveals that taking a lesson from retailers may help.”

“Set the asking price just below a round number — that’s the best technique for pricing a home for sale, according to new research published in the Journal of Housing Research. Researchers found buyers are more drawn to a house priced ‘just below’ at, say, $199,000 than to a house priced at a rounded number like $200,000. ‘We tested the age-old debate concerning the best technique to price a home when listing it for sale,’ Michael Seiler said. ‘We find that using a price just below a round number works best, particularly in connection to the left-most digit in the price. So, $199,000 works better than $200,000.’”

“If you are becoming frustrated that your home or other real estate is not selling schedule a meeting with your Realtor to discuss why. There is a good chance it is something other than price but a simple change in presentation may be the answer you are looking for.”

KXAN in Texas. “As more people move to Central Texas, home prices keep going rising. A new report shows homes are now more expensive than before the housing crisis. According to the Austin Board of Realtors, the median price of a home in Travis County is $335,000. Williamson County is closer to $260,000 and Hays County is nearly $100,000 less than Travis County. From June to July, all of the median home costs went up.”

“‘We have hit all-time highs here from even before the crash of 2007,’ said Michael Oakley with Renter’s Warehouse. He says in Texas, home values typically increase 3 to 7 percent a year. That’s on the high end. ‘In Austin, we’re easily seeing 7 to 10 percent — on average — going up in home values,’ Oakley said.”

“He says he isn’t concerned about that trend shifting and people losing value on their home. ‘I’m not worried about it. No. Will there be a pullback, absolutely. Does that mean you’re going to lose money – no, it doesn’t,’ Oakley said. ‘Job growth is incredible here. The economy is great here. So even if there was a bubble here and even if the bubble crashed on a national scale, I think we’d be sheltered here.’”