November 29, 2016

The End Of A Decade-Long Boom Sounded Alarm Bells

A report from in Australia. “Last year their house prices were skyrocketing — now they’ve come back down to earth. Growth in property prices across a range of once booming Sydney suburbs has recently ground to a halt after hitting an affordability ceiling. The slowdown was most evident in Parramatta, where the median house price fell 14 per cent over the last three months after having nearly doubled between 2011 and 2015. Adjacent suburb Rosehill, where the average price of a house went from $470,000 in 2011 to $1 million in early 2016, recorded a 7 per cent drop in median price, Core Logic data showed.”

“Other suburbs in the region, including Granville and Harris Park had median price falls of over 4 per cent, reversing growth of about 60 per cent over the five years prior. Drops in prices were not restricted just to Sydney’s west. Inner west suburb Dulwich Hill’s median house price fell 8 per cent, while neighbour Summer Hill had a 5 per cent drop. St George suburb Kogarah’s went back 4 per cent. Median prices had grown more than 50 per cent in these areas over the last five years.”

“Starr Partners CEO Douglas Driscoll said slowdowns in price growth were inevitable in some areas because the supply of housing was slowly returning to normal. ‘Prices had been growing aggressively, especially last year, because there wasn’t much housing going around,’ Mr Driscoll said. ‘Supply and demand has become a lot more even since then.’”

News Corp Australia. “Latest Real Estate Institute of Queensland rental vacancy rates reveal the inner-city ring has remained relatively consistent – moving from 3.4 per cent to 3.7 per cent from the June to September quarters. REIQ CEO Antonia Mercorella said inner-city landlords, who were particularly sensitive to the current question of oversupply, had been extremely competitive with rents to lure tenants from middle-ring suburbs.”

“Place Projects business development manager Sophie Smith said that in addition to price cutting, landlords were offering incentives such as two week’s free rent to secure a tenant. Some were also cutting rents to keep tenants from moving out at the end of a lease.”

From ABC News. “WA Housing Minister Brendon Grylls says policies requiring prospective homebuyers to cough up deposits of 30 per cent in mining towns across Australia are a ‘hangover’ from the mining boom. The end of a decade-long investment boom sounded alarm bells for banks, with ANZ Banking Group the first of Australia’s traditional big four banks to enforce the policy in June last year. More than 40 postcodes across Australia are affected by ANZ’s policy, including Western Australia’s iron ore hub of Port Hedland, where potential buyers would require $135,000 for a deposit on an average-priced house. ”

“The ABC has spoken with community leaders in Kambalda who say times are tough but there has not been a mass exodus from the town. The average house price in Kambalda East has fallen from $100,000 to $55,000 in a year, while there has been a similar fall in Kambalda West, where the median price has tumbled from $140,000 to $95,000.”

“Ray White Kambalda principal Cheryl Davis, the town’s only real estate agent, told the ABC that times were tough, but there had not been a mass exodus from the town. ‘The Commonwealth Bank has been our saviour, they’re about the only bank that will deal out here,’ she said.”

Your Investment Property Magazine. “The demand for housing in Australia’s mining areas has declined significantly due to sinking commodity prices and dwindling mining investments. Median prices in Port Hedland peaked at $925,000 in June 2013 and sales volumes peaked at 402 in July 2006. Current median prices have fallen to $390,000 (-58% lower than peak), and current sales are 128 (-68% below peak).”

“Median prices in Karratha peaked at $815,000 in October 2010 and sales volumes peaked at 511 in March 2005. Current median prices have fallen drastically to $362,980 (-55% lower than peak), and current sales are 235 (-54% below peak). Median prices in Mackay peaked at $435,000 in June 2013 and sales volumes peaked at 3,264 in April 2004. Current median prices have fallen to $345,000 (-21% lower than peak) and current sales are 1,045 (-68% below peak).”

The Chinchilla News. “If those unacquainted with history are doomed to repeat it, then communities unacquainted to oil or gas booms are inevitably doomed to similar fates. Hoping to save towns from being swept up in the frenzy which accompanies sudden booms, researchers from the University of Queensland’s Centre for Social Responsibility in Mining (CSRM) have been analysing statistical evidence and interviews from ‘boom towns’ to try and assist communities to plan ahead and get locals ‘on the same page.’”

“Dr Kathy Witt explained ordinarily occurring patterns were ’sped up’ in boom-times, such as the sudden, dramatic, spike in the Chinchilla housing market prompting a lot of people to sell at the same time. ‘You can argue that one day Chinchilla may have got a KFC or Woolworths anyway, it just got sped up. So we can say it acted as a catalyst for change.. that’s brought on diversity that wasn’t there before. But there is a new normal, so it certainly has changed some of the (town’s) core characteristics,’ she said.”

“Local grazier, Joe Hill said the trend which had been apparent in the Chinchilla housing market was reflected outside town on the properties too, but while houses had been filling up again in more recent months, farm houses remained empty. ‘Around where I am, within a 50km radius, there’s roughly 12 homes that are not being lived in,’ Mr Hill said. ‘Families have moved out after the gas companies have bought them out and the local community is just disintegrating.’”

Overpriced Homes With Inflexible Sellers Will Sit

A report from the Boston Globe in Massachusetts. “The epic building boom that has added thousands of luxury housing units in the Boston area may have peaked, as a report to be released Tuesday by an influential foundation suggests the region has run out of customers willing to shell out huge sums in monthly rents. The Boston Foundation says the number of permits for new housing units issued in Eastern Massachusetts is expected to fall by nearly 20 percent this year, the first decline since the most recent surge of construction began in 2011. Housing specialists attribute the drop-off to the higher end of the housing market, where units can rent for $3,000 a month or more in and around Boston.”

“‘We’ve satisfied very-high-end demand, and so the number of luxury buildings is slowing down,’ said Barry Bluestone, a housing economist at Northeastern University and author of the Boston Foundation report. ‘We haven’t seen much [building for] the middle and lower ends of the market.’”

The Madison Park Times in Washington. “The year 2016 is one for the record books. Home values saw double-digit appreciation in 2016, with the median home price in King County up 14.6 percent, according to the Northwest Multiple Listing Service. It’s not just Seattle that’s experiencing soaring home prices. All across Washington, home prices are rising faster than in any state in the country. Amidst all the record-setting positive news, there is reason for caution on horizon. The latest jobs estimates suggest the economy may be slowing down.”

“‘What concerns us is the fact that three of the five key industries appear to be applying the brakes,’ according to ‘Aerospace and information (including software) contributed 2,000 jobs during the three-month period, but construction, wholesale and retail trade, as well as professional and business services, which have a combined workforce of 689,800, added nothing.’”

“Metrostudy’s second quarter 2016 survey of the Seattle housing market shows that the first signs of the slowdown have begun to show up: slowing job growth along with a dramatic change in migration numbers. ‘The state’s in-migration has hit negative numbers for the first time in over four years,’ said Todd Britsch, Regional Director of Metrostudy’s Seattle region. Anecdotally, I’m seeing fewer bidding wars. More surprising, I’m noting a number of price reductions on listed homes.”

The North Bay Business Journal in California. “The residential real estate market in Marin, Napa and Sonoma counties is decelerating and showing signs of fatigue after five consecutive years of growth, according to a new survey of market data. Single-family home and condominium sales in the three North Bay counties seem to have plateaued, and the forecast for 2017 is for home and condo sales to remain flat with a chance to actually decline in some micromarkets, according to Terra Firma Global Partners, a residential real estate services firm with nine North Bay offices.”

“During the first nine months of this year, 15 percent fewer homes and condos traded ownership in Marin County, 5.3 percent fewer in Sonoma and 9.6 percent fewer sales occurred in Napa, compared with the first nine months of last year. 2017 could be a good year to start ‘taking some chips off the table,’ particularly if the goal is to downsize in the next couple of years, according to Terra Firma Global Partners senior associates Jaime Pera in Marin. ‘Homes that are overpriced with inflexible sellers will sit and likely end up selling for less than if they had been priced correctly in the first place,’ Pera wrote.”

The Real Deal on New York. “This week, the biggest price reduction on a luxury property was at the 740 Park Avenue duplex where a young Jacqueline Bouvier lived with her parents in the 1930s. Last week, the Rosario Candela-designed duplex was slashed from $32.5 million to $29.5 million, a reduction of 9 percent. In total, four properties in the over-$10 million market were discounted by more than 5 percent in the period from Nov. 11 through Nov. 21, according to data provided by StreetEasy.”

“740 Park Avenue, 6/7A: The owner of this palatial duplex, Hedge fund manager David Ganek, had high hopes that this property would fetch top dollar. In 2014, not long after Ganek dropped $28 million on a condominium in Soho, the financier and his novelist wife Danielle listed the duplex for $44 million. But apparently buyers weren’t moved by the co-op’s links to Jackie O, at least not enough to shell out $44 million. In April, the price was dropped to $32.5 million. It was reduced again last week, and is now asking $29.5 million.”

“20 West 53rd Street, Apartment 47: This four-bedroom pad was listed in December 2014 for $27 million. In August, the listing was taken from Corcoran and given to Douglas Elliman, and the asking price was slashed to $23.8 million. Last week, the property was discounted again, this time by 8 percent. The apartment, which spans 4,557 square feet, is now asking $22 million.”

“980 Fifth Avenue, apartment 18A: First listed back in April for $12.9 million, the property has already received two price reductions. The current asking price is $11.2 million, a 6 percent reduction from its previous asking price of $11.9 million. Property records shows Romain Hatchuel to be the current owner. Hatchuel, a native of France, paid $7.5 million for the apartment in 2011.”