September 30, 2016

The Market Is Getting Ready To Make A Big Switch

A report from KSBY in California. “If you live in Santa Maria, you may have noticed more homes for sale in your neighborhood. There may have been a lot of price reductions, too. One local realtor says the market is getting ready to make a big switch. ‘We start seeing it shifting from a sellers’ market now to an actual buyers’ market,’ said Vatche Maestas, a real estate agent with Keller Williams. ‘We are not seeing the rapid price increases now. A year ago, we could put a house the market on one month, and the following months it could go up by $10,000. We aren’t seeing that. Right now, we are seeing more price reductions.’”

“And according to agents, new homes are selling quickly. The challenge is the older, higher-priced homes, which are stalling out. ‘Save me some money,’ said Mike Alexander, a home buyer and Orcutt resident. ‘We’ve waited a while, so were looking forward to it. The only question we have is, ‘Do we wait longer and get a better deal? Right now, I’m seeing more and more property coming available.’”

The Marin Independent Journal. “The median price of a Marin home was almost $1.1 million last month, up 14 percent from the previous August, according to CoreLogic. In contrast, prices in San Francisco edged up a mere 1 percent this August compared with August 2015. Price jumps and drops in the Bay Area generally begin with San Francisco and radiate throughout the area. ‘The rate of increase in appreciation is starting to level off,’ said Peter Nielsen, an agent with Marin Realty Experts. ‘The upper range is softening. Also, I’m seeing price decreases once in a while.’”

“Nielsen said the decreases are probably ‘more a case of someone operating under the assumption that the appreciation is skyrocketing and they are trying to hit that next level.’ Instead, Nielsen said, ‘it may be time for sellers to take a more realistic look at their pricing and not keep trying to break the record.’”

The Orange County Register. “California’s housing market will post modest gains next year amid tight supplies and the lowest housing affordability in six years, the California Association of Realtors forecast Thursday. Home sales are leveling off. Prices are rising more slowly. And even with mortgage rates near all-time lows, the California housing market is making a lackluster recovery from the Great Recession, said Realtor Chief Economist Leslie Appleton-Young.”

“‘I think we’re getting close to the peak of the market, but we haven’t really had a stellar recovery either,’ Appleton-Young said in an online news conference. ‘What you’re seeing in the California housing market is not what I would consider robust activity.’”

“Even though the market is approaching its peak, she said, it’s not edging toward a crash – barring a major catastrophe like sudden mortgage rate hikes or a stock market meltdown. ‘It’s really going to be more of a slow squeeze than a big drop,’ Appleton-Young said. ‘We’re living that right now.’”

General Market Conditions Have Deteriorated

It’s Friday desk clearing time for this blogger. “The economy officially bottomed in June of 2009, according to the National Bureau of Economic Research. Since then, our country has been slowly working its way back to less dire, more promising, conditions. The road to recovery has been somewhat slow and bumpy, but this morning’s S&P Case-Shiller housing report is further confirmation that we are heading in the right direction. Specifically, housing prices continue to strengthen, and have now risen nearly 40% from the lows of 2012.”

“Nationally, prices are now less than 1% from their previous highs. In fact, pockets in the west are reporting double digit yearly price gains, with all-time record highs in Portland, Seattle and Denver (in more ways than one). We can all thank Fed Chair, Janet Yellen, and our friends at the Fed for serving us low interest rates. Historically, low mortgage rates have been a boon for newbie home buyers and real estate in general. But what’s going to happen if interest rates rise? Ah, who cares, for now everything is ‘Rocky Mountain High.’”

“Construction on the H3 Hollywood condominium has stopped, at least temporarily — and that may be an indication that the market for new condos in Broward County is softening, analysts say. In a letter to buyers, the developer, Hollywood Station Investments, noted that ‘general market conditions have deteriorated’ and the company is trying to get construction financing. ‘This may be the first sign that [southern Broward] is catching the flu that Miami-Dade has,’ said Peter Zalewski, principal of the Condo Vultures consulting firm.”

“Ken Thomas, a South Florida economist and banking analyst, said lenders will make every attempt to work with developers, but they’ll insist on more equity in the projects and other terms to reduce risk. ‘A loan that seemed good six months ago or last year may not make sense now,’ he said. ‘[H3] is only one, but I think we’ll be seeing more of these.’”

“Residential mortgage default insurance premiums are likely to increase for homes in hot real estate markets as a result of beefed-up capital requirements for Canada’s mortgage insurers coming into force next year. And it is homebuyers who are expected to bear the added cost, rather than the financial institutions that lend the money for home purchases, according to Peter Routledge, an analyst at National Bank Financial.”

“Routledge said he expects two headwinds to hit the Canadian housing market if the OSFI mandated changes go ahead as proposed: higher mortgage rates and a higher probability that foreclosures will increase. The combined impact could contribute to a cooling of the market. The analyst said the new rules could also serve to crimp the practice of extending the amortization period of a mortgage to reduce monthly payments when a borrower is in financial distress. ‘In our view, this weakens the incentive for mortgage insurance companies to forbear, potentially increasing the likelihood of foreclosure,’ Routledge wrote.”

“A massive new hotel and resort will be developed by Emaar, Dubai’s biggest and most successful property developer on the emirate’s famed Jumeirah Beach. The Emaar move is surprising as the Dubai hotel market is fast approaching an oversupply which is already impacting on the emirate’s occupancy and room rates. Some developers have walked away from projects, even though the buildings have been almost completed.”

“The Kempinski Palace Hotel on the Palm has been under construction for some years. Investors are being told it will be completed this year, but short of a miracle that will not happen. The construction of the Seaview Hotel near the Zabeel Saray Hotel is almost complete however the site has been abandoned for well over a year. The Taj Exotica Hotel is another abandoned construction site, notwithstanding the hotel is partially built. The massive Kingdom of Sheba Hotel and Residences development at the top of the Palm is also an abandoned construction site.”

“Cluttons, a firm of international real estate consultants, has noted that there is an overall slowdown of activities in Lagos’ commercial real estate market, with rents either stagnating or declining across most segments of the sector. According to Faisal Durrani, Head of Research and Partner at Cluttons, ‘The deteriorating global economic conditions have also impacted Lagos’ commercial real estate market, with transaction levels dipping and vacancy rates rising across the board, putting rents under downward pressure and driving landlords towards offering a range of lease incentives to entice demand.’”

“Perth property sellers were feeling a whole lot of pain in the past June quarter, with one in five selling their home for less than the previous purchase price. In the Perth CBD, more than one in two properties, 52.8 per cent, sold at a loss. Nationally the average loss hit its highest level since 2004, with those who lost out taking a bath to the tune of an average of $73,009. But for those who turned a profit, the reward was an average $262,550.”

“‘The loss makes sales figures for houses in Perth at their highest level since September 1996 and for units the highest level ever with data going back to 1994,’ said CoreLogic analyst Cameron Kusher. ‘I think there is probably some more pain to come over the next few quarters at least.’”

“The Singapore property market overall has been muted in this quarter but the auction scene has thrived, according to consultancy JLL. ‘The third quarter also showed a fairly even mix of successfully auctioned property types as well as owner profiles. Preceding quarters typically saw more residential non-landed units and mortgagee sale listings being auctioned off,’ the report said.”

“JLL auction and sales head Mok Sze Sze said: ‘With the uncertain economic outlook and current buyers’ market, the auction will likely become a preferred mode of sale for owners where a definite timeline is set for decision with no cooling-off period. In addition, we anticipate that there will be an increase in mortgagee sales of between 10 and 20 per cent next year.’”

“Speculative buyers have eschewed Chinese stocks in favor of property, prompting even the chief economist at the central bank of the world’s second largest economy to declare that housing was in a ‘bubble.’ Deutsche Bank AG Chief China Economist Zhiwei Zhang thinks he’s pinpointed ‘a clear sign of a bubble’ in the market — one that will end in a major correction in two years’ time. After analyzing how much developers were willing to spend to win land auctions in 10 major Chinese cities in which values are already up 23 percent year-over-year, the economist found that the business case for these bids evaporates unless property prices continue to increase.”

“If property prices simply tread water from here, the Deutsche Bank economist reckons that buyers accounting for more than half of land sales values in these auctions would lose money. The ’soaring land auction premium revealed very high expectation of further property price inflation,’ Zhang said. ‘Indeed unit land prices in many auctions are even higher than the finished apartments nearby, a phenomenon referred to as ‘flour more expensive than bread,’ he writes.”

“Federal Reserve Chair Janet Yellen said that she believes the largest banks in the country can legally exist, days before a handful of them are due to submit reports to the Fed that could lead to their breaking-up. ‘We believe it is possible, even though it is extremely challenging for [these] organizations to comply with the law,’ she said, in testimony before the House Financial Services Committee.”

“Yellen made the remarks in response to questions about Wells Fargo that had been asked by Rep. Brad Sherman (D-Calif.). In their exchange, Yellen told Sherman that the Fed ‘will hold the largest organizations to exceptionally high standards of risk management, internal controls, [and] consumer protection.’”

“Sherman replied that the regulatory body has proven itself incapable. ‘Two million phony accounts not detected by regulators,’ he said. ‘Break ’em up.’ ‘From a Democratic side, I’ve heard too big to fail is too big to manage. From a Republican side, I’ve heard that too big to fail is too big to regulate,’ he added. ‘But whether the fault is the regulators who can’t regulate it, or the managers who can’t manage it, too big to fail is too big to exist.’”

“The line of questioning was repeated later in the hearing by Rep. Mike Capuano (D-Mass.), who pointed out that the Fed had punished Wells Fargo in 2011, for policies similar to those that fostered account falsifications. ‘We are very concerned with all of the compliance problems and violations of laws that have occurred,’ Yellen told Capuano, at the end of his round of questioning. ‘You know they’re laughing at you,’ he replied.”