The Housing Bubble

It’s Friday desk clearing time for this blogger. “Earlier this year, Mr. and Mrs. Cai, a couple from Shanghai, decided to end their marriage. The rationale wasn’t irreconcilable differences or even mild disagreements; rather, it was a property market bubble in China’s financial hub. The pair, who operate a clothing shop, wanted to buy an apartment for 3.5 million yuan ($519,000), adding to a couple of places they already owned. But the local government had begun, among other bubble-fighting measures, to limit purchases by existing property holders. So, in February, the couple divorced. ‘Why would we worry about divorce? We’ve been married for so long,’ says Mr. Cai. (He requested that the couple’s full names be withheld to avoid potential legal difficulties.) ‘If we don’t buy this apartment, we’ll miss the chance to get rich.’”

“‘The only thing I know is that buying property won’t turn out to be a loss,’ says Mr. Cai. ‘Just take a look at the past two decades. … From several thousand yuan a square meter to more than a hundred thousand yuan. Did it ever fall? Nope.’”

“Finding tenants for her four investment properties never used to be much of an issue for Singapore investor Jenny Yang, but those days of easy money are long gone. Two of her units - a studio apartment in Novena and a two-bedroom unit near Lavender MRT station - remain vacant after the tenants, both foreigners, returned home in recent months. ‘In the past, before one tenant moved out, I would get another offer, especially for the Lavender unit… now it’s slower. The offers are too low as well,’ she told The Straits Times.”

“Landlords like accountant Eunice Lim have been more flexible in view of the weaker demand. Ms Lim recently rented out a one-bedder in Balestier for $1,700 a month. ‘That’s a 30 per cent drop in rent… I was prepared to offer a discount. High rents in this market will not materialise. We have to be realistic,’ she said.”

“From giving discounts of Rs 2 to Rs 5 lakh to sops such as gold coins, cars, scooties and even white goods, developers are going all out to woo customers this season, especially in areas where the unsold inventory is huge. In Delhi NCR, Prateek Group is giving away Hyundai Grand i10 cars, scooties and refrigerators. A real estate group active in Kundli, Sonepat region, is offering discounts of around 15% on the basic sales price for their project in TDI City, Kundli. ‘The current unsold inventory across India today stands at 10 lakh units. The unsold inventory in Mumbai is around 2.56 lakh units and Delhi NCR it is around 3 lakh units,’ says Pankaj Kapoor, managing director of Liases Foras, a consultancy firm.”

“A realtor is offering a free Mercedes with purchase of apartments on Auckland’s North Shore. James Law Realty, which is marketing Chelsea Bay Residences in Birkenhead, is including a Mercedes-Benz A-Class A180 - valued at around $51,000 on the road - to buyers of its ‘premium’ apartments.’ Premium residences at the 56-apartment development on Rawene Rd are priced upwards of $900,000. Massey University Chinese marketing specialist Henry Chung said the promotion was an ‘innovative and bold move’ by the agency, where seven out of 10 of its clients are Asian, mainly Chinese.”

“‘Mercedes is traditionally seen as the most luxurious car brand among the Chinese, and this brand is associated with prestige,’ Chung said.”

“The number of Australians falling behind on their mortgage repayments has hit the highest level in three years and is expected to rise, despite record low interest rates. Suburban areas such as Kingston, south of Brisbane, Moorina, north of that city, and Paralowie in northern Adelaide are high on the list of postcodes showing mortgage stress. But ratings agency Moody’s found Western Australia has the most home loans that are at least 30 days in arrears, blaming the end of the mining boom and a slowing state economy.”

“The levels of delinquencies in Western Australia, Tasmania and the Northern Territory are at the highest rates since Moody’s began collecting home-loan data in 2005. ‘The increase (in delinquencies) raises the risk of mortgage defaults,’ said Moody’s vice-president Alena Chen. ‘The regions and postcodes exposed to the resource and mining sectors dominates the list of areas with the highest mortgage delinquencies.’”

“Billionaires are shunning the London luxury property market, with sales of ’super prime’ £10m-plus homes in the capital collapsing by 86% over the past year. The average price paid also fell steeply, from £22m to £16.3m, said property group London Central Portfolio, which carried out the analysis. Newbuild sales have slumped in particular, said LCP. No super-prime newbuild units were sold over the three-month period, compared with last year where they made up 23% of sales.”

“Naomi Heaton of LCP said: ‘A price correction was inevitable and is widely reflected in reports of price discounting. Whilst the long term outlook remains compelling, the luxury market is likely to experience continued instability especially in the face of the forthcoming ‘look through’ non-dom inheritance tax … it may take some years before growth returns.’”

“British investors may have disappeared from the New York City real estate market, but Chinese buyers are stepping in to fill the gap, according to real estate heavyweight Barbara Corcoran. Corcoran said there is huge interest from Chinese buyers across the United States. ‘We’ve totally lost all of our buyers from England,’ Corcoran told Bloomberg Radio. ‘We don’t see any more buyers at all. It was a real black eye for us in the New York City market.’”

“Corcoran said Chinese buyers are ‘coming in droves,’ and are ’spending money like they’re printing it.’”

“As the luxury market struggles, condo projects are dropping like flies. Argentine developer Alan Faena confirmed Tuesday he was ‘pausing’ a planned two-tower condo complex in Miami Beach. Developers across South Florida have pumped the brakes on condo high-rises as a strong dollar and weak economies abroad cripple the buying power of foreign investors. ‘In all of my business dealings, from Buenos Aires to Miami, I have always trusted my sense of the market and successfully read its cycles,’ Faena said in a statement. ‘The best business decision at this time is to pause Faena Mar as we evaluate various options.’”

“Unless central bankers stop sowing discord by inflating a bubble with make-believe money, the world’s top central banks will find their independence challenged, former Conservative Party leader William Hague was quoted as saying. ‘Central banks collectively have now indeed lost the plot,’ Hague, a former foreign minister, said in an article in the Daily Telegraph newspaper. ‘They are blowing up a bubble of make-believe money to avoid immediate pain, except for penalising the poor and the prudent.’”

“‘Like doctors keeping their patients on a drip many years after an operation, they are losing credibility and producing very dangerous side effects,’ Hague said in an article titled ‘Central bankers have collectively lost the plot. They must raise interest rates or face their doom.’”

“Hague said the impact of current central bank policies was that savers found it hard to earn any return on their money, asset prices inflated the wealth of the rich, pension funds had poor returns and ‘zombie companies’ stayed in business because they could borrow cheaply. Unless central bankers - including at the Bank of England - stopped, then their independence will be challenged, Hague said.”

A report from the Desert Sun in California. “Madelaine LaVoie greets visitors with hugs and brownies at her Yucca Valley real estate office. LaVoie points to a little black cabin, with a mid-century slanted roofline and a wooden pergola, on the horizon. ‘That one just closed escrow for $400,000,’ LaVoie says, adding that it’s a one-bedroom, one-bathroom house. ‘There’s only a few of them up here, and they’re coveted… they all want this, and they pay through the nose to have this kind of a look.’ ‘They,’ LaVoie said, are a stream of out-of-area homebuyers flooding into the high desert, particularly Joshua Tree, in the last two years. In the last year, these buyers have driven the high-desert hamlet’s prices up by more than 30 percent.”

The Lakeland Times in Wisconsin. “According to data released by the Northwoods Association of Realtors (NAR), real estate sales over the past quarter - July through Sept. - have continued their positive outlook. In Oneida County, off-water home and condo sales increased from 96 to 116 over last year, however the average price of home sales only increased by $1,500. ‘The number of sales have increased but prices have stayed kind of flat,’ NAR member Bonnie Byrnes said. ‘I think that’s indicative of the fact we still had a decent amount of inventory to work through.’”

“‘Probably the one sector that still seems to be struggling is vacant land, both waterfront and off-water,’ Byrnes said. ‘Mostly because there are still such good deals out there for existing homes, to build new, you might not come out ahead. You get what you want but you might have a better value in an existing home.’ Vilas County’s vacant land sales are likewise all over the board with off-water lot and land prices decreasing by an average of $4,250 but increasing by one in the number of sales. On-water lots and land however decreased in both average price - by half - and number sales.”

From ABC Action News in Florida. “In real estate timing is just as important as location and right now the timing is getting better for buyers. Price reductions are becoming more common all over Tampa Bay. A quick search of homes in the $400 thousand range and you’ll find reductions of $50 even $100 thousand dollars. Real Estate Agent Vince Arcuri says price reductions in the Tampa are starting to pick up, but he says the reason has less to do with election anxiety and more to do with supply and demand.”

“The summer is over, the rush of buyers has subsided, and inventory is up. ‘Which means as a seller you have to get a little bit more aggressive on price,’ says Arcuri. This is a smart time to buy a home. And if you’re selling Arcuri says it’s time for a reality check. ‘If your home hasn’t sold and it has been on the market for a couple of months, it’s a wise move to reduce your price , because of the time of year we are in.’”

The Greenwich Sentinel in Connecticut. “The strong market under $2 million has continued all year and into September. Over $3 million the high-end sales slump continues with seven fewer sales this September compared to last September. Our inventory for $2 – 3 million is down 15 houses and contracts are up 3 houses. As a result, our months of supply in that category are down by two months from 14 months to 12 months. So while it’s still very much of a buyers’ market the market is getting better.”

“Now you would think with all the inventory that we have at the high-end that everyone could find what they want, but there has been a real sea change in what people are looking for in this price range. A classic example of a house that the owners did a great job of redoing for today’s market is 5 Lindsay Drive. It’s beautifully decorated and cool grays, white carpets even down to the master bath. It will be interesting to see what happens to any of the really beautiful houses that we have that don’t fit what many of the US buyers in this category are looking for. ”

“After an interesting start with some high inventories at all levels, the year has settled down and is actually doing better than last year all the way up to $3M. Over that amount the market is not dead it’s just slower than last year with somewhat higher inventory and sales down a little.”

The Eurasian Review. “We’ve seen this movie before. Next time you crane your neck up into the neon lights of New York City, you just might be looking up at a vacant apartment. Nearly 5,300 apartments in Manhattan are listed for resale end of September 2016. Buyers are playing a waiting game, sellers want to cash out. Year on year apartment sales in Manhattan are down 20 percent for September. This trend is not limited to New York City, though.”

“A three bedroom single family home in Springfield, New Jersey is up for sale at $700,000 and lying vacant for five months; a three bed, three bath plus basement townhome in a Columbia MD cul de sac in one of America’s best school districts was advertised for $450,000 and sold for $400,000 this summer.”

“Exactly ten years after the first cracks appeared in what would become the great crash of 2008, prices are cooling off in America’s housing markets that were red hot for five years on the trot. The five-year surge in real estate demand across the West is starting to take its toll in some areas as buyers become more reluctant to purchase a home that would eat up a large chunk of their monthly earnings. Rents are falling too. Lower rents and higher supply of apartments are making more people wait out the home buying decision.”

“Cheap debt and the decades old packaging of home ownership as a wealth accumulation tool (never mind the debt) in American culture mean that housing crises are a routine blot in America’s economy. The way America does home loan business has not changed. Every home loan is bundled into a bond, guaranteed by the government and sold to buyers worldwide.”

“The mechanics are far more complicated, but it’s not far off the mark to say that a New Yorker’s thirty year mortgage may well be a bond held by a Chinese investor living on the other side of the planet. At least $7 trillion of America’s housing market — the world’s largest asset class — is held exactly like this in the hands of investors worldwide. On the regulatory side, while banks have tightened processes, the fizz is slowly going out for home sellers. After years of nonstop price spiral, buyers are getting price fatigue.”

“In the past five years, home values have soared seventy one percent in Denver, sixty six percent in San Francisco and fifty four percent in Austin, Zillow data show. Nationwide, the gain was twenty two percent. Western cities — especially San Francisco, San Diego, Los Angeles and others like Austin, Texas — which led America out of the Great Recession with a job boom mainly in technology are showing signs of cool off.”

“The same study says buying a roughly 700 square-foot apartment is out of reach for most ‘highly skilled’ people earning an ‘average’ annual income. Surplus high end units in ritzy neighbourhoods and slower growth in high income jobs mean that home prices that are at the tippy top like they were in 2006 than they’ve ever been may get no takers for months — pushing prices down.”

“Almost 200,000 units have come into the rental market in America in the past twelve months and 2016 will set records for construction figures or break them. Lenders are getting more selective about the projects they fund. In a line, if you’re putting money into a house in America, bargain hard and rent while you wait it out. In both cases, you’ll be better off than you’ve been in the last five years. Prices may fall back to earth.”