The Housing Bubble

The Wall Street Journal reports on China. “Shenyang, a provincial capital in China’s northeastern rustbelt, has at times seemed desperate to do something about its glut of housing. In March, the city floated the idea that college graduates be permitted to buy apartments without making a down payment. Derision crackled across social media and elsewhere, with critics saying the plan raised the risks of a credit bubble and recalled the subprime mortgages in the U.S. that fueled a financial crisis. Now the Shenyang authorities are back at it again, with a new idea to encourage college graduates to buy homes: Let your parents pay for it.”

“In a plan announced last Friday, the Shenyang government said people who graduated from college within the past eight years could tap their parents’ housing fund, which is part of the compulsory social-insurance program. ‘In contrast to the healthy southeast, housing inventories in north China are running at stubbornly high levels,’ wrote Gavekal Dragonomics analyst Rosealea Yao in a report.”

The Daily Telegraph in Australia. “Buyers who paid millions of dollars for Harbourfront former public housing that was sold by the state government have discovered their stellar views could be blocked by a neighbouring property, also being sold by the government. The purchasers together spent more than $37 million on eight terraces on Lower Fort St, Millers Point. Eddie Younes, who spent $6.675 million on one of the Fort St terraces in December, said he will sue if the high-rise goes ahead.”

“‘I specifically asked at the time if there were plans for the site and was told nothing would happen,’ he said. ‘The only reason I paid that much was because of the views.’”

The Peninsula Qater. “Rents of most high-end residential Doha properties have fallen by 10 to 20 percent due to oversupply and relatively low demand in the market, say industry sources. Villas and flats in the middle segment have also become cheap. ‘There is a decline in building rents in the residential sector by 10 to 20 percent. Currently about 9,000 housing units are vacant in the market, awaiting customers. There is oversupply in the market and demand is low,’ Khalifa Al Maslamani, a Qatari real estate expert, told The Peninsula.”

“He pointed out that with the current supply-demand equation in the market, it is nearly impossible for landlords to impose a further hike in rents in new tenancy contracts. Landlords cannot increase rents after the contract period in the current situation. If they do, they face the risk of losing their tenants since cheaper options are available in the market. Landlords cannot keep their properties vacant for long because they will have to pay back their bank loans every month,’ said Al Maslamani.”

The News in English on Norway. “While housing prices are literally going through the roof in most areas of Norway, those hit hard by the oil industry slowdown have seen prices fall. Homes have been changing hands for millions of kroner below appraisal, but some key investors are confident the market will eventually bounce back. One villa at Olav Nilssons Gate 52 in Stavanger’s fashionable Eiganes district, for example, had been put up for sale for NOK 13 million (USD 1.6 million) in January of last year. After languishing on the market for a year-and-a-half, it ended up selling this summer for NOK 8.8 million, 30 percent less than its initial market appraisal.”

“The deal was not unusual. Another house on the same street was listed at NOK 15 million, but sold for NOK 11.87 million. Another home with an asking price of NOK 15 million ended up selling for NOK 12 million. ‘One of the biggest challenges in the market now, and in this neighbourhood in particular, is that in many cases there is a wide gap between sellers’ expectations and what the market is actually willing to pay,’ real estate broker Sjur Andre Svihus of Eiendomsmegler1 in Eiganes, told Rogalands Avis.”

“He said that some desperate sellers are setting prices higher than what the brokers recommend. Prices have fallen dramatically in some areas after years of a red-hot market, ‘and it takes time to communicate this to sellers,’ Svihus said.”

From Bloomberg on the UK. “When Scarlett Gray looked for an apartment in central London two years ago, she was practically laughed out of agents’ offices. She was told those sought-after places rarely come on the market. This summer, she had to stop herself from checking listings online, because she became overwhelmed with her choices. ‘Every single day there were more,’ said Gray, 26, a marketing manager. ‘It was sort of a nightmare—but a good nightmare.’”

“A flood of properties have hit the rental market after successive tax increases in 2014 and 2016 deterred buyers, leading would-be sellers to put their places up for rent instead. Brexit-induced uncertainty has also added to the glut. The number of prime rental properties available surged 49 percent in the second quarter from a year earlier, the largest increase in six years, according to Knight Frank.”

“Landlords in some of London’s poshest neighborhoods are finding themselves at the mercy of tenants’ demands, and some are having trouble coming to grips. An investment group that purchased a two-bedroom apartment in St. James’s Place refused to rent it out for just over £5,400 ($7,100) a month, opting instead to do a little refurbishment—against the agent’s advice. After the touch-ups, the apartment was still sitting on the market for weeks. One offer recently came in at around £4,750 a month.”

“‘It’s very frustrating,’ said real-estate agent Kim Bays, of CarterJonas, who was working with the landlord. ‘They think they can get so much more.’”

“Tenants are testing landlords by putting in low bids on multiple properties. ‘They can afford to put in cheeky offers, because at some stage there were some landlords more desperate than others for the rent,’ said Karen Carpmael, an agent at W.A. Ellis.”

A report from WTOP. “Fewer homes for sale gets the blame for the recent slowdown in housing sales, but not every real estate expert believes the slowdown in sales is just because of low inventory. ‘I don’t think it’s the inventory. That’s the easy whipping boy in this housing market,’ said Daren Blomquist, senior vice president at RealtyTrac. ‘We’ve seen increasing sales in the midst of low inventory over the last four years. I think the culprit here is the high prices. This housing recovery has become a victim of its own success,’ he said.”

“RealtyTrac notes that the weakest purchase origination volumes right now are in the super hot markets that are the highest priced across the country. And something else has slowed dramatically. Refinancing activity is down, despite those low mortgage rates. ‘We’ve picked the bone completely in terms of refi, and there are really no scraps left in terms of people who haven’t refi’d. And people who have refi’d are at a low enough rate, where even a little bit lower rate isn’t going to make a difference. We have ridden that train as far as it can go,’ Blomquist said.”

“What is on the rise is originations of home equity lines of credit, or HELOCs, as existing homeowners tap into the equity rising home values create. HELOC originations were up 5 percent in the second quarter from a year ago, the 17th consecutive quarter with an annual increase.”

DS News on Louisiana. “Louisiana may be on the verge of a large housing crunch due to not just the recent flooding causing disruption to thousands of homeowners but also the economic situation in large metro areas in the state according to a recent report from Fannie Mae. The report states that in particular, New Orleans, while having escaped most of the flooding, is seeing an economic slowdown that is impacting their housing market.”

“‘The backsliding economic situation in metro New Orleans is disappointing,’ says Kim Betancourt, director of economics for Fannie Mae’s Multifamily Economics and Market Research (MRG) group. ‘New Orleans’ short-lived economic recovery is over, and the metro area is on the verge of slipping into a recession.’”

The Modesto Bee in California. “Plywood covers the windows on both stories, the doors and the garage. Trash piles continue to grow in the backyard. Paperwork stapled to the garage door of the bank-owned property details the numerous code violations and orders it to make repairs. Indeed, this house on Phoenix Avenue in Modesto’s La Loma Neighborhood certainly stands out along a street lined with otherwise well-maintained homes, most about 30 years old and all but that one well-kept. Like so many others throughout Modesto, the place is vacant except for when squatters break in. It’s a frequent target of metal thieves.”

“It’s just one problem home in a city that has scores of them, with another added to the list each week on average as neighbors or other residents complain. Some are bank-owned, some by local owners and others by out-of-towners. Either way, the homes are eyesores, unsafe, unsanitary and need to be dealt with.”

“Bert Lippert, whose job with the city’s building department is to deal with these blighted properties, is working more than two dozen active cases now and those don’t include what the four code-enforcement officers and supervisor in the city’s Neighborhood Preservation Unit handle in getting properties cleaned up, graffiti removed and other issues.”

“‘They’ve handled 4,800 cases (in 2016) and that was before ‘Go Modesto,’ Lippert said, referring to the city’s new mobile app for reporting blight and checking the status of progress toward addressing a specific property. The city has dealt with below-code homes ever since it developed building codes. But the economic downturn that began in 2007 and led to foreclosures and abandonments literally opened the door for trespassers, vagrants, vandals and others to move into the vacant places and trash them.”

“‘That is when we started seeing more squatters,’ he said.”

KOLN in Nebraska. “There are plenty of options for UNL students who plan to live off-campus after their freshmen year. It seems like every year, a new student apartment complex pops up in Lincoln, in fact some in the industry fear there are too many. Jerry Shoecraft, manager at 50/50 apartments, said now there are too many student apartment complexes. ‘Now that the market is getting over saturated, I think it is becoming a problem for investors and operations that are existing,’ said Shoecraft.”

“But new apartments aimed at student housing keep popping up, and Shoecraft said the companies are going to start losing a lot of money when they can’t fill the rooms. ‘Based on the analysis and surveys that we have done and participated in, a lot of the new student housing operations are barely 50, 60 percent occupied,’ said Shoecraft.”

“Meredith Burroughs, a UNL student, who now chooses to live 15 minutes from campus, said there are a lot of options for housing, but she believes there is another reason these companies are losing money. ‘They are not filling up because they are so expensive and a lot of us are paying our own rent, so we don’t want to pay 700 dollars a month just to live close to campus,’ said Burroughs.”